Category: zerohedge

Authored by Robert Blumen via The Mises Institute,

Is gold money? Many would say so, and a web search returns tens of thousands of additional affirmative responses. If you want to start a fight with a gold bug, take the opposite view.

But is it so?

To answer the question of whether gold is money requires a definition. This one, from Wikipedia, is typical:

Money is anything that is generally accepted in payment for goods and services and in repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value.

Wikipedia refers to three properties of money. However, according to the Austrian economist Carl Menger, its acceptability in trade is the defining property. While money undoubtedly does serve as a store of value and a unit of account, these properties are derivative, not definitional properties. The reason that a medium of exchange necessarily is also a store of value is the anticipation of its exchange value in the future.

On this point Menger wrote,

[I]t appears to me to be just as certain that the functions of being a “measure of value” and a “store of value” must not be attributed to money as such, since these functions are of a merely accidental nature and are not an essential part of the concept of money.

Using the above definition, the question of whether any particular good is or is not money, can be posed in this way: is the good in question accepted as the final means of payment for transactions?

At present, in the developed world, nearly every nation has its own money or belongs to a currency union, such as the EU. Some nations in the developing world use the US dollar. In highly inflationary environments, the local currency is often spontaneously rejected in favor of the dollar or another foreign currency. Hardly anywhere do we find gold generally accepted as a means of payment. So gold must fail the definitional test of moneyness.

Is this the end of the argument (and so the end of a very short article)? Not quite. Gold is not money, but it has most of the desirable properties of money, and the process by which it became money in the past gives some clues about how it may become money once again.

A store of value is not necessarily a medium of exchange. As Menger says, a nonmonetary commodity can serve as a store of value:

But the notion that attributes to money as such the function of also transferring “values” from the present into the future must be designated as erroneous. Although metallic money, because of its durability and low cost of preservation, is doubtless suitable for this purpose also, it is nevertheless clear that other commodities are still better suited for it.

Analyst Paul van Eeden has shown that gold has maintained its purchasing power relative to the time that the gold standard ended. In “Is Gold an Inflation Hedge?” I have provided links to Van Eeden’s articles and a more detailed discussion. I will summarize his analysis here. A theoretical gold price equivalent which would give gold the same purchasing power as it had at the end of the gold standard is calculated by taking the convertibility ratio of $35 in 1933, and then multiplying by a factor representing the growth in the quantity of fiat money from that time. Under the classical gold standard, gold was the entire world’s money. By counting worldwide growth in currency (not only US dollars) and comparing it to a worldwide price currency index of the gold price, van Eeden avoids the pitfalls of looking only at gold’s dollar price, which can experience significant volatility due to the dollar’s exchange rate against other national currencies.

Van Eeden’s research shows that, since the end of the gold standard, the price of gold in units of fiat currency has tracked its purchasing-power-equivalent price fairly well, oscillating in a band around its theoretical value. In essence, the purchasing power of gold has been reasonably stable in the time since the end of the gold standard, which is only another way of saying that gold has served as a store of value.

Even today most of the demand for gold is not for direct use, but demand to hold. In the developed world, people purchase coins and bars for storage in vaults. In other areas, people save by accumulating bullion jewelry. Distinct from ornamental jewelry, bullion jewelry has low workmanship value added. Its price is not much greater than the melt value of its metal content.

I wrote the following in “The Myth of the Gold Supply Deficit“:

The World Gold Council estimates that 52% of gold is held as jewelry. James Turk subdivides jewelry holdings into low carat and high carat. The former is purchased mainly for the gold value, as an alternative to buying bars and coins. The latter is purchased mostly for fashion. According to Turk’s estimate (which was published in 1996), monetary jewelry at that time accounted for about 60% of jewelry with fashion jewelry accounting for the remaining 40%. However, even when made into jewelry, the gold is not destroyed and can come back into the market as scrap. The WGC figures show significant recovery from scrap.

That gold continued to be a store of value post–gold standard was unexpected by many economists. In the early 1970s, when the dollar’s link to gold was cut, economist Milton Friedman predicted that the price of gold would collapse.4 The Nobel laureate believed that the gold derived its value from its relationship with the dollar; without gold backing, there would be far less demand for gold. There would, of course, continue to be industrial demand for the metal, but without monetary demand provided by the dollar, the vast supply that had been accumulated during the preceding centuries would overhand the market, depressing the gold price for the foreseeable future. Friedman could not have been more wrong. It was the dollar that collapsed in the 1970s, while the gold price in dollars began a bull run that was not eclipsed in nominal terms until late last year.

A similar and still widely held view in the world of mainstream financial analysts is that gold has been “demonetized.” The argument goes like this: central banks decide what money is; central banks have determined that gold is not money; therefore gold is not money. Only the stupid gold investors haven’t figured this out. This view of the gold market sees the price of gold as determined primarily by central banks (who own an estimated 10–17% of aboveground supply). The critical variable is how they will time the sales of their gold hoards without causing a selling panic as market participants realize that their gold coins and bars have no monetary value.

But why is gold a better store of value than most any of a vast number other nonmonetary goods? Why were Milton Friedman and the other economists wrong? Their error was the assumption that political institutions have the final say over what is and is not money. But this is not so: the market has final say. Looking at the process by which money originated from barter helps to understand why. According to Menger, money came into being through the efforts of individuals to expand the range of goods they could acquire through exchange beyond the possibilities available. Some individuals in a barter economy begin by bartering their goods for a commodity that they do not need but is generally in demand throughout the market, with the intention of later exchanging that commodity for other goods. This strategy is called indirect exchange. These astute traders realize that “the acquisition by trade of the consumption goods that he needs…can proceed…much more quickly, more economically, and with a greatly enhanced probability of success.”

As societies moved from barter to monetary economies, different goods were in competition with each other for use as money. Over time, as monetary exchange expanded in proportion to barter, some commodities were found to work better as money than others, until only a handful of them became “acceptable to everyone in trade.” Those were gold and silver.

What qualities have made gold (and silver) the winners of the monetary competition in centuries past? The qualities most often cited by monetary historians are durability, divisibility, recognizability, portability, scarcity (the difficulty of producing more of it), and a value-to-weight ratio that is neither too high nor too low. Too low a ratio would make it hard to carry enough for spending, while too high a ratio would make small transactions difficult and prevent the commodity from being sufficiently widely owned in the prior barter economy. Gold still has these qualities today. While fiat money has some of them, it fails the scarcity test: it is too easy to create more of it.

The result of market competition is not necessarily permanent. Market competition is an ongoing process. Even when one commodity emerged as money, there continued to be competition from other nonmonetary commodities. Once the world’s money, even gold could have lost its place had a superior alternative emerged. But that is not the reason we no longer use it. Political money did not prove its superiority through a market process. What happened instead was a politically imposed change from a better system to a worse system.

Although the central bankers have used political means to replace gold with paper, they do not have the power to end the competition between their money and commodity money. The “demonetization” of gold by central banks has rigged the competition—but not ended it.

Gold as money may not be over for all time. As the monetary system melts down, gold functions as “shadow money,” an alternative that competes with the political money. It remains a store of value because of its potential to become money again. There is continuing demand for gold as a hedge against the breakdown of the fiat system.

Governments cannot force people to use their money beyond a point. The market will only continue to accept fiat money as long as it works well enough (or even, not too badly). If governments debase their currency beyond a point where it maintains some value over time, people will stop using government currency and switch to something else.

In countries suffering hyperinflation (or even just excessive inflation), people typically start quoting prices and accepting in trade in the more stable currencies of other countries. Earlier this year, VietNamNet reported that land prices are being quoted in gold rather than the local currency, the dong.

The world is lurching through a serious monetary disorder. The proximate cause is the collapse of the housing bubble and the subprime-credit crisis, but the ultimate cause is the inherently unstable monetary system foisted upon us by a banking cartel. Central bankers are called upon to act as lenders of last resort, but in their efforts to inflate their way out of the credit collapse, they risk igniting a hyperinflationary bonfire that will destroy the world’s major fiat currencies. Gold was money once, and could become so again.

[Originally published September 2008.]

President Biden’s campaign received a record-breaking amount of anonymous donations to outside groups backing him, which means the public “will never have a full accounting of who helped him win the White House,” according to Bloomberg.

In total, $145 million in so-called dark money donations, “a type of fundraising Democrats have decried for years,” backed the Biden campaign – and combined with his $1.5 billion record-breaking haul. Of note, Biden’s campaign called for banning certain types of nonprofits from spending money to influence elections, and that any organization spending over $10,000 to benefit a candidate register with the Federal Election Commission (FEC) and disclose its donors.

They didn’t specifically call on their own supporters to do so, however.

That amount of dark money dwarfs the $28.4 million spent on behalf of his rival, former President Donald Trump. And it tops the previous record of $113 million in anonymous donations backing Republican presidential nominee Mitt Romney in 2012.

Democrats have said they want to ban dark money as uniquely corrupting, since it allows supporters to quietly back a candidate without scrutiny. Yet in their effort to defeat Trump in 2020, they embraced it. –Bloomberg

One such dark money recipient, Priorities USA Action Fund designated by Biden as his preferred vehicle for outside spending, backed Biden with $26 million originally (and anonymously) donated to its nonprofit arm, Priorities USA.

Priorities USA Chairman Guy Cecil deflected when asked about the funds, saying in a statement “We weren’t going to unilaterally disarm against Trump and the right- wing forces that enabled him.”

Another entity funneling dark money to benefit Biden was the Future Forward PAC, which spent $104 million backing Biden. While they received tens of millions from known sources, such as $46.9 million from Facebook co-founder Dustin Moskovitz, $3 million from Twilio CEO Jeff Lawson, and $2.6 million from Alphabet’s Eric Schmidt – they received $61 million from Future Forward USA Action – none of which requires disclosure of sources.

The Sixteen Thirty Fund, a nonprofit that sponsors progressive advocacy, donated a total of $55 million in the 2020 election cycle to Democratic super-PACs, including Priorities USA Action Fund and Future Forward PAC, FEC records show. That total was much more than the $3 million it gave in 2018.

Amy Kurtz, executive director of the Sixteen Thirty Fund, said the surge of money to the group, which doesn’t disclose the names of its donors, included people who previously gave to Republicans or had not been engaged in politics.

The flood of dark money to Democrats and progressive groups has complicated their effort to reform the system. –Bloomberg

According to former FEC general counsel Larry Noble, Biden benefited from a campaign finance law loophole – though Noble also noted that dark money is hardly the largest source of cash contributed to campaigns when wealthy donors can simply write eight-figure checks to super-PACs (which have heightened disclosure requirements). Meanwhile, joint fundraising committees can bring in lots of donations as high as $830,500.

That said, donors who wish to remain anonymous can give to political nonprofits, such as Defending Democracy Together – which spent $15.6 million in support of Biden – none of which has to be reported to the FEC. Moreover, donors can give money to nonprofits which then give money to super-PACs, such as in the case of Priorities USA.

Big donors — individuals or corporations — who contributed anonymously will have the same access to decision makers as those whose names were disclosed, but without public awareness of who they are or what influence they might wield.

“The whole point of dark money is to avoid public disclosure while getting private credit,” said Meredith McGehee, executive director of Issue One, which advocates for reducing the influence of money on politics. “It’s only dark money to the public.” –Bloomberg

According to the Center for Responsive Politics, Democrats benefited from $326 million in dark money this election cycle – over twice the $148 million that supported Republicans. In some states, Democrats heavily relied on dark money to purchase attack ads against Trump in battleground states such as Michigan, Wisconsin and Pennsylvania.

Not all Democrats are happy with the flood of dark money in the 2020 election cycle.

“Dark money is toxic to democracy — period,” said Democratic Senator Sheldon Whitehouse of Rhode Island. “The fact that progressive groups have learned to fight back using similar tactics is no excuse for continuing the plague of dark money in America.“

Authored by Tuomas Malinen via GnSEconomics.com,

In late 2017 we reported, as probably the first macroanalytic firm in the world to do so, that the growth of Total Factor Productivity (TFP) has stagnated globally since 2011 (see Figure 1). In the economic community, our finding was met with interest, but also with resistance and disbelief.

Figure 1. The regional and global growth of the Total Factor Productivity (TFP). Source: GnS Economics, Conference Board.

Healthy criticism is naturally the correct way to welcome all radical new findings, but in this case the Modern Monetary Theory (or “MMT”) community in particular attacked our findings with a barrage of (mostly contrived) arguments.

In this somewhat technical blog post, we aim to clarify the misconceptions surrounding the issue, and to briefly summarize why we should, in fact, be gravely concerned about the stagnation of productivity growth.

Pre-requisites

Effectively, TFP measures the share of GDP growth which cannot be accounted for by capital investment (in equipment and machinery) and the quantity and the improved quality of the labour force (skills and training). Thus, TFP is the “unexplained” element of economic growth.

The existence of such a factor was first postulated as economists failed to capture the entirety of economic growth by changes in capital and labour. To understand the difference between estimates and reality, in 1956 Robert Solow developed the now-famous Solow Model of Economic Growth, which was awarded the Nobel Prize in 1987.

Unfortunately, TFP is hard to measure and no simple data to represent it is available.  It was the Solow Model which first suggested that one can find the value of TFP by collecting data from observed factors for capital, labour and economic growth and then, by applying some basic estimation techniques to the growth model, calculate TFP as the remainder, now known as the “Solow Residual”.

Furthermore, it was discovered that a large part of GDP growth was explained by technological innovation rather than purely by capital and labour. Therefore, the Solow Model inspired a surge in global research on total factor productivity.

It is both unprecedented and unexpected for TFP to stagnate in an economic expansion. Stagnating productivity growth implies that firms are unable to increase their productivity, and that they are unprofitable as well. This is occurs naturally during recessions and crises, when both investments by, and the income of corporations tends to fall.

On the other hand, it is deeply worrying when corporations are unable to increase their productivity in an economic expansion, because it implies that new technology is not flowing into the production process in an effective manner.

The foundations of the Solow model of economic growth

Now, we must take a short walk on the ‘wild-side’ and lay down the foundations of the Solow growth model in order to explain where TFP arises from. We are forced to alter the regular notations due to the limitations of our platform.

In any given economy, the production of goods and services emerges from three main sources: capital, labour, and total factor productivity, or TFP. In Solow’s (1956) growth model, this is illustrated by the formula

where  is shorthand for Gross Domestic Product GDP, the quantity of capital is denoted by K, the labour force by L and TFP by A. Note that productive role of capital and labour is expressed by  while total factor productivity A multiplies the GDP produced by capital and labour alone.

Equation (1), even though a simplified expression for the real world, still illustrates the basic idea of TFP. For example, in a case where the capital stock K and the labour force L remain constant, GDP may grow if the TFP increases. Conversely, in spite of investments in capital and labour, GDP may fall under conditions of decreasing TFP.

Equation (1) can be developed further in order to tell a more specific story about the production of Y= GDP. Often used is the multiplicative formula:

which implies that the factors may differ in terms of their relative importance, which in (2) is expressed by the exponents adding up to unity. By taking the logarithms of (2) and then differentiating against time, one can derive an expression which shows how the growth rate of the GDP (Ý/Y) is associated with the growth rates of the factors (Á/A, ´K/K, ´L/L):

The Total Factor Productivity

The multiplicative formula (3) suggests a very straightforward way to estimate the unobservable rate of technical progress by collecting the observable data from growth rate of the GDP (Ý/Y), capital (´K/K), and labour (´L/L). Note that several observations for each element is needed. They may come either from several different countries in a given year, or from a single country over many years. The more observations, the better.

Once the data is collected, one first estimates the reduced formula:

to estimate the average value for the parameters a and b denoted by ã and õ. Since the estimated parameters are sample-averages, the observed growth rate in individual countries or years may differ from the growth rate calculated by ã´K/K + õ´L/L. In general, the difference between the observed and calculated value is called the residual. Equation (3) now says that the reason for the residual to exist is that the term

is missing. Since we already know the values for ã and õ, we can easily calculate the rate of technical progress Á/A, or the growth rate of TFP, for each individual country or year.

Therefore, the rate of technical progress is known as “Solow residual”. The trick is that the Solow model can uncover the unobserved value of the TFP from the observed values of GDP, capital and labour and thus to explain the “unexplained” part of economic growth.

There’s no mystery, but a worry

Every factor (Y, K, L) is calculated in real terms, which means inflation is removed from them using a price deflator. More importantly, the calculation of total factory productivity is not related to price, salaries, capital gains, This is because all monetary values cancel out in its calculation (see for example the Conference Board for details; requires registration).

What is truly troubling, however, is how global TFP growth can stagnate when the economy is growing.

In Q-Review 1/2019, we detailed the process through which economy grows. We wrote:

Long-term economic growth is driven by technical innovations which improve productivity. What this means is that innovations (from spinning-jenny to industrial robots and beyond) increase the productivity of a human worker thus increasing his wage and making products cheaper.

Moreover, we noted that:

However, this process assumes a crucial element, which has been dubbed creative destruction. It means, simply, that more efficient (more productive) methods will replace the old and inefficient. This requires that old firms fail and new firms take their place.

In a capitalist market economy, both the successes and failures of the private sector drive economic progress. The first enables the accumulation of income and capital, while the second exposes unsustainable businesses while encouraging new sustainable businesses in a process Schumpeter called “creative destruction”. 

Thus, the economy grows through the delicate balance between failures and successes. There cannot be one without the another.

The destruction of the creative destruction

As we have been warning since 2013, central banks have, with their excessive meddling in the economy, destroyed price discovery in the capital markets. When risk is not correctly priced in the markets, capital allocation is distorted and poor investment decisions result.

Purchases of government bonds by central banks inflates their prices, making debt financing too cheap, sparing politicians from having to make tough choices fix their ailing economies.  As we are now witnessing in real-time, this leads invariably to over-indebtedness and, eventually, to a debt crisis.

Even more worryingly, low interest rates and easy credit keeps firms that should fail in operation. These so-called ‘zombie companies’ tie-up private capital and bank lending in unprofitable uses leading, first, to stagnated productivity growth in corporations and then, as a result of excessive overall debt levels, to suboptimal economic performance on both a  national (and global) level.

To simplify, central bank meddling is highly detrimental to the economy.

The complete story behind stagnating productivity growth and the wholesale destruction of economies must include the failed policies of governments and the detrimental effects of supra-national control mechanisms. Since the arrival of the pandemic, and the response of governments to it, everything has gone from bad to worse.

*  *  *

We will return to these in detail in the March issues of our Q-Review series. 

Stay informed how the world economy and the global economic crisis through our Q-Review reports and Deprcon Service, which are available at GnS Store

An explosion that rocked a church in El Monte, a city in Los Angeles County, California, has prompted an investigation by the FBI on Saturday morning. 

The FBI responded overnight with @elmontepolice & @LASDHQ to an #IED attack at the First Works Baptist Church in El Monte, CA. Bomb Techs & the FBI’s Evidence Team continue to process the scene. If you have a tip about the responsible party, please call 3104776565. #SeekingInfo pic.twitter.com/LobrjbrZtx

— FBI Los Angeles (@FBILosAngeles) January 23, 2021

The First Works Baptist church at 2600 Tyler Avenue was apparently bombed with “an IED,” or a homemade or “improvised” explosive device, the FBI said. 

Police and firefighters arrived at the scene early Saturday morning to find smoke coming out of the building, the Los Angeles County Fire Department said.

The controversial church has had a history of being targeted. More recently, a demonstration was held following church members saying the government should execute gay people, San Bernardino hate-speech expert Brian Levin told San Gabriel Valley Tribune. 

 FBI spokeswoman Laura Eimiller said: 

“As to the question of whether this was a hate crime, that’s always going to be considered among the theories when a house of worship is attacked,” Eimiller said. “But it would be premature to confirm any motive at this time, and we are not ruling any other motive out.”

El Monte police Lt. Christopher Cano said, “it appeared that the walls to the church had been vandalized as well as all the windows.

The windows “appeared at first to be smashed, then we realized that the windows were not smashed, that they had blown out from some explosion,” Cano said.

“Although we do not yet know the motive, I am aware of the anti-LGBTQ+ and misogynist sermons given by the pastor of First Works Baptist Church,” L.A. County Supervisor Hilda Solis said in a statement, “and my office has referred concerning matters about the pastor to the County’s Human Rights Commission, who has been working in collaboration with the City of El Monte to de-escalate the situation.”

The Southern Poverty Law Center (SPLC), a nonprofit legal advocacy organization specializing in civil rights and public interest litigation, labels the church an anti-LBGTQ group on its website. 

Numerous church members spoke at the “Make America Straight Again” conference in Orlando in 2019, according to SPLC. 

Despite President Joe Biden’s calls for “unity” to bring the fractured country together, it appears the escalation between the left and right are continuing. 

Just two days after unleashing his latest immigration Executive Order, easing border restrictions and removing President Trump’s travel ban from so-called “majority Muslim” countries, President Biden will impose a ban on most non-U.S. citizens entering the country who have recently been in South Africa starting Saturday in a bid to contain the spread of a new variant of COVID-19, U.S. public health officials told Reuters.

Given that 80% of South Africans are black, the natural question is – is this ban racist?

We are in the midst of a crisis with the coronavirus. We need to lead the way with science — not Donald Trump’s record of hysteria, xenophobia, and fear-mongering. He is the worst possible person to lead our country through a global health emergency.

— Joe Biden (@JoeBiden) February 1, 2020

Or was Trump’s travel ban just good science?

Additionally, Biden on Monday is also reimposing an entry ban on nearly all non-U.S. travelers who have been in Brazil, the United Kingdom, Ireland and 26 countries in Europe that allow travel across open borders, said the sources, who requested anonymity because the plans have not yet been made public.

Notably, Reuters points out that the South African variant, also known as the 501Y.V2 variant, is 50% more infectious and has been detected in at least 20 countries. CDC officials said they would be open to adding additional countries to the list if needed.

The South African variant has not yet been found in the United States but at least 20 U.S. states have detected a UK variant known as B.1.1.7.

Current vaccines appear effective against the UK mutations.

And Dr.Fauci has once again flip-flopped on that variant, now claiming that the new, more virulent strain of the coronavirus is also more deadly.

As The Hill reports, asked by CBS’s Margaret Brennan about his earlier claims that the strain, while more infectious, was apparently no deadlier, Fauci said:

“The data that came out was after they had been saying all along that it did not appear to be more deadly. So that’s where we got that information.”

DEADLIER NEW #COVID STRAIN? Biden’s Chief Medical Adviser Dr. Anthony Fauci tells @margbrennan that recent British data likely suggests the new #covid19 strain is deadlier, but “we want to look at the data ourselves”

WATCH –> pic.twitter.com/jzbTyaZAIX

— Face The Nation (@FaceTheNation) January 24, 2021

“When the British investigators looked more closely at the death rate of a certain age group, and they found that it was one per thousand… and then it went up to 1.3 per thousand in a certain group,” Fauci added.

“That’s a significant increase. So the most recent data is in accord with what the Brits are saying. We want to look at the data ourselves, but we have every reason to believe them. They’re a very competent group.”

Fauci went on to say Americans “need to assume now that what has been circulating dominantly in the U.K. does have a certain increase in what we call virulence, namely the power of the virus to cause more damage, including death.”

And worse still, Fauci warned separately that “in some cases [the South Africa strain] diminishes the efficacy of the vaccine” but the vaccine was still generally effective.

VIRUS MUTANTS: Dr. Anthony Fauci tells @margbrennan that the #Covid19 variant found in South Africa has a “negative impact” on some antibody therapies.

In *some* cases it “diminishes the efficacy of the vaccine,” but he stresses that the vaccine remains effective over all. pic.twitter.com/u7u4pl2ckO

— Face The Nation (@FaceTheNation) January 24, 2021

Has he been ‘liberated’ to give us this advice? Or is this making up for his awful admission last week that the Biden administration is NOT “starting from scratch” and that the Trump administration (of whose COVID Task Force he was a major part) actually did something.

Either way, as hospitalization rates, case increments and deaths slow dramatically – despite Biden’s “worst is yet to come” comments – there is always room for more fear, just as the indoor dining bans are lifted across various blue states…

It’s a Biden miracle! pic.twitter.com/PI4mmFTMxZ

— Marina Medvin 🇺🇸 (@MarinaMedvin) January 24, 2021

Authored by Amelia Janaskie via The American Institute for Economic Research,

While data, statistics, historical allusions, and appeals to morality all demonstrate the disastrous nature of lockdowns, none show the devastation as vividly as personal stories from those suffering the most. 

Since March 2020, New York City has faced a constant back and forth of new and revised Covid-19 regulations. Although these policies initially appear helpful in Covid mitigation, they are not only ineffective but extremely harmful to people and their livelihoods. We spoke to a few working New Yorkers and found the situation to be just as suspected: businesses on the brink of shutting down for good, students struggling to learn, and unmatched frustration. The anecdotal videos below provide a glimpse into the lives of many people in New York City.

While the individuals interviewed are understandably frustrated, they all exude perseverance, strength, and – above all – hope. 

Irene

Irene is no stranger to adversity. In 2018, her husband, Chris, unexpectedly died.

Faced with her grief, Irene juggled raising their four boys with the sudden demand of learning how to run a restaurant. Prior to her husband’s untimely passing, she had not been involved with operating the diner, so when he died, she briefly contemplated selling it. But the restaurant was her husband’s legacy; quitting was not an option, especially for a New Yorker like herself. As a resolute business owner and mother, she refuses to give up her rights to freedom and to earn a living. 

Adam

Adam, a special education teacher at a high school in Bay Ridge, Brooklyn, is especially concerned with the academic, social, and emotional well-being of his students during lockdowns.

His students come from a diverse neighborhood and most are from immigrant families. Adam has watched most of his class suffer through remote learning and fall behind academically because of school closures. A significant portion of their families do not have the time, resources, or ability to facilitate learning in a way that at all resembles in-person education.  

Ed

Ed’s culinary dreams became a reality in March 2007 when he opened Ed’s Lobster Bar in SoHo.

He successfully led his burgeoning seafood restaurant through the 2007-2008 financial crisis, but 2020 lockdowns brought new and greater challenges. Restaurants have been disproportionately harmed by lockdown restrictions, and like many others, The Lobster Bar has been forced to cut worker pay and limit dining capacity. Looking ahead, Ed hopes to return to a free society where people can choose to participate in the New York economy, all while keeping a determined mindset in the face of hardship. 

It was over a decade ago that we first warned the Fed’s unconstrained monetary lunacy will eventually result in civil war, a prediction for which Time magazine, which back then was still somewhat relevant, mocked us. This is what Time’s Stephen Gendel said in October 2010:

What is the most likely cause of civil unrest today? Immigration. Gay marriage. Abortion. The results of Election Day. The mosque at Ground Zero. Nope.

Try the Federal Reserve. Nov. 3 is when the Federal Reserve’s next policy committee meeting ends, and if you thought this was just another boring money meeting you would be wrong. It could be the most important meeting in the Fed’s history, maybe. The U.S. central bank is expected to announce its next move to boost the faltering economic recovery. To say there has been considerable debate and anxiety among Fed watchers about what the central bank should do would be an understatement. Chairman Ben Bernanke has indicated in recent speeches that the central bank plans to try to drive down already low interest rates by buying up long-term bonds. A number of people both inside the Fed and out believe this is the wrong move. But one website seems to indicate that Ben’s plan might actually lead to armed conflict. Last week, a post on the blog Zero Hedge said … that the Fed’s plan is not only moronic, but “positions US society one step closer to civil war if not worse.”

* * * * *

The problem is that the Fed directly sets only short-term interest rates. And they are already about as close to zero as you can go. That’s why Bernanke has been talking about something called “quantitative easing.” That’s when the Fed basically creates money to buy the long-term bonds that it doesn’t directly control and drives down those interest rates as well. That should further reduce the cost of borrowing for large companies and homeowners. Some people are calling this “QE2” because the Fed made a similar move during the height of the financial crisis when it bought mortgage bonds. (See photos of the Tea Party movement)

Not everyone agrees this is a good move. In fact, a number of presidents of regional Fed banks, not all of which get to vote at Fed policy meetings, have recently come out against Bernanke’s plan. Some say it sets bad policy. Others think it will stoke inflation, which might be the point. Few, though, have warned of armed conflict. Here’s how Zero Hedge justifies its prediction of why the Fed’s Nov. 3 meeting will lead to violence:

In a very real sense, Bernanke is throwing Granny and Grandpa down the stairs – on purpose. He is literally threatening those at the lower end of the economic strata, along with all who are retired, with starvation and death, and in a just nation where the rule of law controlled instead of being abused by the kleptocrats he would be facing charges of Seditious Conspiracy, as his policies will inevitably lead to the destruction of our republic.

O.K. The idea that Bernanke might kill large swaths of low-income neighborhoods or Florida by his plan to further lower interest rates is a little ridiculous. But there is a point in Zero Hedge’s crazy. Lower rates do tend to favor borrowers over savers. And the largest borrowers in the country are banks, speculators and large corporations. The largest spenders in the U.S., though, tend to be individuals. Consumer spending makes up 70% of the economy. And the vast majority of consumers are on the low end of the income scale. So I think it is a valid question to ask whether the Fed’s desire to drive down interest rates at all costs is working. Companies are already borrowing at low rates. They are just not spending. (Read a special report on the financial crisis blame game)

That being said, civil war, probably not. “It is a gross exaggeration,” says Allan Meltzer, who is a top Fed historian at Carnegie Mellon. “I cannot recall ever learning about riots or civil war even when the Fed made other mistakes.”

All this happened more than a decade ago – since then we have seen not only QE2, but “Twist”, QE3, “NOT QE”, and eventually QEternity last March which mutated into outright and unlimited helicopter money to pay for universal basic income – and while at the time it merely added to our “reputation” of a tinfoil conspiracy blog, it appears we were (sadly) correct again based not only on the increasing tears within the US social fabric which culminated in unprecedented riots and looting last summer and continued social upheavals in recent months, but also in terms of what one of the biggest investing minds of this generation just tweeted. We are referring to Bridgewater founder and billionaire Ray Dalio, who moments ago tweeted that we are “on the brink of a terrible civil war”.

Here is what Dalio just said:

Back in February, I said I wanted a president who could “bring together our country to face our challenges in a more united and less divisive way.”

I wanted someone who would unite people – i.e. who does not view themselves as the leader of the winning side imposing policies the other side would find intolerable.

I believe we are on the brink of a terrible civil war (as I described in The Changing World Order series), where we are at an inflection point between entering a type of hell of fighting or pulling back to work together for peace and prosperity that addresses the big wealth, values, and opportunity gaps we’re now seeing. For that reason I was thrilled to hear what President Biden said at his inauguration. It is consistent with the direction history has shown the country needs to move in.

Now the question is whether the president and both parties will bring that about. Good words and spirit aren’t enough. People will have to agree on both how to grow the pie and how to divide it well. That will require revolutionary change.

Doing it peacefully requires both bipartisanship and skill. It won’t be easy. Our country is still in a terrible financial state and terribly divided.

While Dalio correctly points out the extremely precarious spot where splintered US society stands right now, it is again disappointing that instead of admitting the true poison eating away at the heart of US society, Dalio once again refers to the symptom – the presidency – and not the underlying diseases that brought it on. We are confident that it has to do with the fact that the well-being of Dalio’s own fortune is heavily reliant on not kicking the hornets’ nest of catastrophic monetary policy, but merely diverting attention to whatever is the media taking point bulletin du jour, in this case the ongoing Trump vs Biden narrative clash.

We can only hope that one day Dalio will have the guts to tell the truth about why we are indeed “on the brink of a terrible civil war” and expose the real criminals behind the deadly divisions tearing apart US society.

Authored by Paul Joseph Watson via Summit News,

CBS4 Medical Editor Dr. Dave Hnida says that Americans should wear not one but TWO face masks if they want to ensure full protection against COVID-19.

“Specifically what we’re saying is that two masks may actually equal the protection you would get from N-95 masks, which is considered the best mask there is short of a complete respirator-type unit,” Hnida said.

Pointing out that football coaches and Joe Biden have been seen “double masking,” Hnida said, “Even in my own family, when we have outside contact — as limited as it may be — we double mask,” adding that “it’s something you may want to consider.”

However, the report warns that “three masks may be going too far, since that could interfere with the ability to breathe.”

“Like the way one mask does, except three times as bad, so that you actually asphyxiate,” commented Dave Blount.

As we previously highlighted, wearing two masks has become a preferred method of virtue signaling on Twitter, with leftists posting selfies to prove they’re a ‘doubleplusgood person’ for social media clout.

A question that repeatedly crops up in response is that if two masks are required to provide full protection, doesn’t this mean that wearing one mask, as Americans have been told to do for the best part of a year, is ineffective?

This past November, a landmark Danish study found that, as the Spectator reported, “there was no statistically significant difference between those who wore masks and those who did not when it came to being infected by Covid-19.”

As soon as the study was released, legacy media outlets fell over each other to attack its credibility in a vitriolic manner strangely absent in response to studies that amplify the consensus narrative on COVID.

Meanwhile, more and more people appear to be wearing masks while doing vigorous exercise despite the fact that this can trigger serious respiratory problems.

For some, it appears that virtue signaling for dopamine is worth risking their own lives for.

*  *  *

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One doesn’t have to be a “legendary” investor to call out bubbles, especially once who correctly called the excesses of the dot com and housing eras, but it helps and it’s probably why Jeremy Grantham had such conviction last week when he said that not only is the market currently an “epic” bubble but that it will suffer a “spectacular” crash in “the next few months.” Needless to say, such an alarmist view is hardly in the best interests of banks who make commissions on two-way trades instead of outright sales (or liquidations), but in a notable departure from tradition, several banks have joined Grantham in calling for a sharp market correction either imminently (Bank of America) or in the second half of the year (Wells Fargo).

To be sure, concerns about an asset bubble have grown so widespread, with the latest Deutsche Bank survey finding the the vast majority of respondents (89%) see some bubbles in financial markets currently…

… that even Goldman’s clients – traditionally among the most cheerful and optimistic of all, pied pipered by the perpetually bullish view of Goldman strategists – are starting to freak out.

As Goldman’s chief equity strategist David Kostin writes in his latest Weekly Kickstart report, “among the questions we receive most frequently from clients is whether US stocks trade at unsustainably high levels (read: “Bubble”).”

So how can Goldman answer without sounding completely idiotic and disingenuous on one hand, denying that valuations are massively stretch and euphoria is everywhere as the latest Citi panic/euphoria model shows…

… yet without sparking a liquidation-driven market crash by admitting that it is in fact, a “massive bubble”:

Well here’s how Kostin delicately threads the needle: first, he admits that valuations have indeed rarely (read never) been higher, writing that “on an absolute basis there is no doubt that valuations are extremely elevated. The index trades at the upper end of the historical range when measured using a variety of metrics, including P/E, P/B, EV/sales, EV/EBITDA, and market cap/GDP. These measures point to equity valuation ranking in the 96th historical percentile (Exhibit 2).”

“However”, he then quickly counters before readers call their favorite Goldman salesman and bark the “sell all” order, when “taking into account the yield on Treasuries, corporate credit, or cash, the aggregate stock market index trades at below-average historical valuation.”  Kostin then tries to ease lingering concerns that stocks are in a massive bubble (which they are), writing that “in fact, as economist Robert Shiller recently pointed out, his oft-cited CyclicallyAdjusted P/E Ratio (“CAPE”) shows that equity valuations are “not as absurd as some people think,” provided interest rates remain relatively low. Our economists forecast the 10-year Treasury yield will rise to just 1.5% at the end of 2021 and only exceed 2% in mid-2023.”

Kostin here falls back to the only partially credible justification he can make for exorbitant valuations, namely that near-record low yields means that stocks are cheap compared to bonds, and thus deserving of high multiples.

This, as we explained last December in “No, Low Rates Do Not Lead To Higher Earnings Multiples”, is total rubbish since over time low real rates have never led to – or justified – the record market multiples except for cases when the market was infact in a bubble,  and it’s not just us making this observation but last week, Deutsche Bank’s Jim Reid did too showing the following chart (which was adopted from Jerry Minack and which we first showed on Dec 5):

But why does Kostin, knowing well that his argument has already been debunked, keep making this ridiculous justification for continued buying of risk? Simple, because as he says in the very next sentence, “we expect modestly higher rates will be offset by a declining equity risk premium, leaving the S&P 500 P/E effectively unchanged and allowing strong EPS growth to drive the market towards our year-end target of 4300.“

And there you have it: it’s kinda tough to agree there is a bubble when your own S&P price target in 11 months is almost 500 points higher at least when it comes to Goldman’s clients; the answer to what Goldman’s prop book is doing now will have to wait until the congressional hearings after the bubble bursts. As a reminder, back in the 2007 bubble, Goldman’s desk was actively betting on a housing crash by selling CDOs to the very same clients it told to buy CDOs (sometimes in collusion with other major clients such as Pauslon), knowing well that the crash was imminent. But we digress.

Anyway, back to Kostin who naturally realizes that any “all clear” signal would be immediately laughed out by most sophisticated finance professionals (with 89% of them already believing there is a bubble as the DB survey showed, he is caught between a rock and a hard place), and so he is forced to strategically caveat his cheerful assessment, writing that “although the aggregate equity market appears reasonably valued, pockets of the market have recently appeared to demonstrate investor behavior consistent with bubble-like sentiment.”

One such area is unbridled frowth is SPACs. As Kostin then notes, in 2020 (which he dubbed the “Year of the SPAC”), 229 US SPACs raised $76 billion, a figure 6 times greater than in 2019. During the first three weeks of 2021, another 56 SPACs have raised $16 billion, already half the total raised in all of Q4 2020.

According to Goldman calculations (which we presented previously), “if the 5x ratio of equity capital to target M&A enterprise value persists, the $80 billion of uncommitted SPAC capital would drive $400 billion in M&A during the next two years.” However, as he also notes, that is conditional on each of those SPACs finding a suitable private company target and negotiating a merger.

Yet even as Kostin warns that Spacs are clearly one aspect of a market bubble, he doesn’t see it as having dire consequences, to wit:

Low interest rates, the flexible structure, and the two-year window to find a target before returning capital suggest the popularity of SPACs will continue in the near term. Importantly, we see little risk to public equity markets should investor enthusiasm for SPACs subside.

It’s not just SPACs, however, that Goldman is telling its clients to be ware of – as the bank notes next, “the sharp recent outperformance of stocks with negative earnings is another potentially bubble-like phenomenon that many clients have highlighted. During the last 12 months, the shares of firms with negative LTM EBITDA have outpaced the average stock by 40 percentage points (82% vs. 42%), a 97th percentile ranking since 1985. By comparison, negative EBITDA stocks outperformed by a similar 30 pp following the Financial Crisis but by 140 pp in 1999-2000 during the Tech Bubble.” This unprecedented surge in the stock prices of non-profitable tech companies is shown below. If anyone looks at this chart and says no bubble, they should never be allowed to opine on anything finance-related ever again.

Ok fine, at least Goldman admits that there are two clear bubble signs. Wait, wait… there’s a third: as Kostin continues, even “more than the outperformance of negative earners, the recent surge in trading volumes of negative earnings stocks registers as a historical extreme. These firms account for 16% of equity trading volumes, exceeding the 15% share in 2000.” Yet like above, Kostin is reduced to pleading with clients not to worry about this clear and grotesque bubble indicator either, because “although this surge appears unsustainable, it also appears to pose little risk to the broad market because these companies account for just 5% of total market cap.” And just in case you start worrying about the insanity that has gripped retail daytrading, Kostin has some encouragement there too: “Similarly, the share of trading volumes in stocks with share prices below $1.00 has doubled in the last two months and ranks in the 99th historical percentile. But these firms only account for 1% of trading volume and less than half of 1% of market value.”

Realizing that he has to expend on why he is dismissing all these clear bubble indicators so generously – or suffer total loss of credibility – Kostin then attempt to do just that, with the following two-paragraph “bubblesplainer”:

Just like in past economic cycles, many stocks with negative earnings today were profitable companies that dipped into unprofitability during the recession.During economic recoveries investors often rotate their portfolios toward firms whose earnings and share prices suffered most during the downturns, particularly in a low interest rate environment that increases the present value of distant future cash flows. Trading activity in stocks with persistently negative earnings during the last three years – unprofitability that cannot be attributed to the pandemic recession –has also been extreme, but these firms amount to just 2% of equity market cap.

Today’s market also lacks the extreme investor leverage that is typical of bubbles. Due in large part to fiscal stimulus, US household disposable income growth was strong in 2020, and the outlook remains positive with further stimulus likely on the way. Excess savings remain elevated and the aggregate US household debt service ratio is nearly the lowest in at least 40 years. As a result, the strong recent inflows to US equities have apparently been funded by cash rather than leverage. While US margin debt has certainly risen in recent months, it currently registers a smaller share of market cap than it has as recently as during 2017-2018. And money market fund assets remain elevated after large inflows in 2020.

In short, yes – the chronic retail momentum-chasers are clearly scrambling to bid up bubble assets, but this in itself is not a risk as they haven’t taken out a third mortgage to do it. Well, let’s wait and see just how much leverage said Robinhooders and redditors have put on as they ravage shorts up and down the market. And that will become apparent only after the crash once the bubble pops, but there’s no need to worry about that happening according to Kostin, because this time is different.

Yet one place where not even Kostin can’t talk down the sheer bubbly euphoria is in high-multiple stocks. As the Goldman strategist admits, “one part of the market that appears frothy and may pose a broader risk is extremely high-growth, high-multiple stocks. Like negative earners and penny stocks, trading volumes and share prices of stocks with EV/sales multiples over 20x have soared. However, these firms are much larger, collectively accounting for 23% of trading volumes during the past month (96th percentile since 1985) and 9% of market cap.”

Of course, even here Kostin has to provide some optimism, and does so by writing that some of this appreciation is appropriate “given record low interest rates. Firms with EV/sales ratios greater than 20x accounted for 2% of trading volumes in 2019. That share rose to 10% in August 2020 as interest rates plunged.”  However, with their share of volumes having doubled again during the most recent market rally…

… Kostin concedes that “history shows investors face long odds of outperforming when buying the most extremely-valued firms.” Why? Because since 1985, the median stock trading at an EV/sales multiple above 20x has generated a subsequent 12-month return of -1%, compared with +6% for the median US stock. The average stock trading above 20x has posted  a stronger return, but still fared worse than the broad market average (+6% vs. +16%).

And just to placate all those Goldman clients who are calling bullshit on everything Kostin just said, he provides them with a handy screen of the 39 US stocks with market caps above $10 billion with both trailing and consensus 2022 EV/sales ratios greater than 20x.

The implication: short these names if you are so worried about bubbles. Of course, what will happen in the real world is that as another round of hedge funds piles into these berserker bubble names, the retail and reddit daytrading army will rush into them, forcing a short squeeze, and sending this basket of 39 stocks soaring to new all time highs.

Why? Because of the very same entity we have been consistently bashing since our inception 12 years ago: the Federal Reserve of the United States, which first destroyed only capital markets, and is now set to finalize its real mandate – the destruction of not only the middle class but the United States itself, while unleashing what even Ray Dalio now admits will be a “terrible civil war.”

Authored by Omid Malekan via Medium.com,

A lot of people have forwarded me this story, with some finding it as a reason to remain skeptical of crypto. It makes for an excellent teaching moment.

First, let’s review some events that have happened throughout history:

The owner of something highly valuable, like a diamond, buried it in the woods for safekeeping. He wrote the location on a piece of paper but lost that paper and could never find his loot again.

A ship carrying gold and silver across the ocean ran into a squall and sank. The treasure was gone forever.

A rare first edition book was accidentally sold to an unsuspecting reader at a garage sale. The buyer was just looking for a cheap read and never learned the true value.

An original print of the Declaration of Independence was hidden inside a random painting. It would ultimately be bought for $4 at a flea market by someone who needed a cheap frame.

Millions and millions of people have lost their wallet, and the cash in it.

Now, having heard these stories, do you believe that diamonds, gold, rare books, original prints and cash are somehow suboptimal? Do you believe that the fact that they can be lost, stolen, accidentally sold or forgotten somehow makes them poorly designed, or even worthless?

Of course not. If anything, you believe the opposite.

The fact that these things can be lost or stolen – and not easily replaced – is what makes them valuable in the first place. It proves they are scarce, and scarcity is important. It’s one of the principle organizing functions of any society, from the most primitive to the most advanced. Only that which is scarce can have lasting value.

But scarcity also implies risk. If there’s no risk, then there’s no lasting value. Ringo Starr’s original copy of the Beatles White Album sold at an auction for close to a million dollars. Being a physical object, it can easily be damaged, lost or stolen. The streaming version of that album on YouTube can’t. That’s why the streaming version is free.

Bitcoins are also scarce. Not just because the underlying protocol is programmed to eventually stop making new ones, but because the ones that are already out there can be lost or stolen. Bitcoin is the first scarce digital asset in history. That’s really important. Lack of digital scarcity has ruined the internet. Just ask any musician whose music streams online.

Since Bitcoins are scarce, and you can’t just call Satoshi Inc. to get a replacement if you lose access to yours, then owning them is risky – as it should be. You can hire someone to help you protect your coins or access them through an intermediary like PayPal, but it’s important that someone along the ownership chain is taking the risk of loss or theft.

Without that risk there’d be no value.

That’s the point that the skeptics who’ve written hundreds of mocking comments underneath that article don’t get. Their schadenfreude is misplaced. Every story like this carries an important subtext: Bitcoins can be lost or stolen, and that loss hurts, because the coins can’t be replaced. So Bitcoins are scarce, like diamonds, physical cash and vinyl records. That means Bitcoins are valuable.

My heart goes out to the guy who lost his key backup and forgot his password, many of us have been there at some point. But the virality of his story is actually bullish for crypto. The skeptics who keep spreading it are doing the rest of us a favor, delivering the subliminal message that this thing that they don’t like and don’t understand must be valuable.

Years from now, our children will have no qualms about any of this. To them, a digitally scarce item will be as logical (and valuable) as a physically scarce one. Their history books will include a chapter on the dark decades between the invention of digital and the achievement of digital scarcity, when everything sucked. The only thing they’ll be confused about is why their parents didn’t buy any crypto when it was still cheap — the same way I feel about the people in my parent’s generation who didn’t keep their original vinyl records.