As we dig through S&P 500 price forecasts for the year 2017, we discover that a majority of “Wall Street’s top strategists”, are calling for a year-end S&P 500 price in the 2,300-2,450 range. None of the forecasters expect a down year, but that’s an article for another day. Not surprisingly, a year-end index price in the aforementioned forecasted range would put growth in line with that experienced since 2012. While the strategists will claim they have extensive multi-factor models that help them arrive at their estimate, it is quite likely many of them rely on extrapolating prior price performance into the future based on the dangerous assumption that the future will be like the past.
Such a forecasting strategy may seem logical, and has worked well for the last four years, but it fails to acknowledge that earnings growth, which have repeatedly been grossly over-estimated, have been relatively flat over the same period. Since 2012, the S&P 500 has risen almost 70% while earnings are up a mere 2%. The graph below plots the S&P 500, earnings per share and their respective trend lines.
Data Courtesy: Bloomberg and Standard & Poor’s
When price increases are not accompanied by earnings increases, it indicates that multiple expansion has occurred. In other words, the ratio of price-to-earnings (P/E) is expanding almost entirely because of its numerator- price increases.
Whether or not an observed expansion of the P/E multiple makes sense depends upon the context. Such a situation may be justified when valuations are at or below the long run average, but keep in mind that current valuations are at levels that have rarely been eclipsed in history. The current P/E multiple is not just above average, it is 70% above the average of over 130 years of observations. For those that follow the consensus expectations, we suggest that you also extrapolate expected returns for ever increasing valuations. The graph below plots the S&P 500 and expected ten-year annualized returns. The expected return is calculated from the regression of monthly Cyclically Adjusted Price to Earnings ratio (CAPE) and the associated annualized returns that occurred over the following ten years. The data encompasses 130 years’ worth of data.
Data Courtesy: Bloomberg and Standard & Poor’s
It is plausible that earnings will increase at a healthy clip and valuations will normalize. However, if we are to extrapolate prices like the so-called experts, then to be consistent, that same logic should also be applied to earnings and expected returns. Expected returns, having trended lower since 2012, are now forecasting a sub-1.00% annualized return for the next ten years.
This brief note is a simple reminder that extrapolating price without considering future earnings trends and valuations is a fool’s game. Extrapolating the past is relatively harmless for street prognosticators. Basing an investment strategy on such a plan, however, can have severe financial repercussions.
Asset forfeiture programs in the majority of states across the country suffer from a lack of transparency and accountability, leaving the public in the dark about how much property police seize from citizens and where those proceeds go, the Institute for Justice, a libertarian-leaning public interest law firm, said in a report released Tuesday.
According to the report, 26 states have little to no transparency requirements surrounding asset forfeiture, and 14 of those states “do not appear to require any form of property tracking, leaving in doubt even such basic questions as what was seized and how much it was worth, who seized it, when it was seized, where it was seized, and why it was seized.” The rest of the states aren’t much better.
In recent years, there has been a bipartisan push to roll back civil forfeiture laws, which allow police to seize property suspected of being connected to a crime without ever convicting, or sometimes even charging, the owner. Law enforcement organizations say the laws allow them to target the illicit profits of drug traffickers and organized crime. However, civil liberties groups say the practice is heavily weighted against property owners, who must pay to challenge seizures in court, and creates perverse profit incentives police.
How much money police departments seize, and what they do with it, is a critical question for anyone trying to get a handle on the scope of asset forfeiture. However, while many states have passed bipartisan laws strengthening due process protections for property owners and limiting how police’s ability to use forfeiture revenue to fund their departments, transparency requirements appear to have fallen by the wayside.
“Given the vast power forfeiture confers on law enforcement to take and keep property—often without a criminal charge, let alone a conviction—states should hold agencies to high standards of transparency and accountability,” Angela C. Erickson, senior research analyst at IJ and co-author of the study, said in a statement. “Unfortunately, most states fail at one or more basic elements of forfeiture transparency.”
In the Institute for Justice’s graded report, no state received an “A.” The best-performing state was Vermont, which received a “B+.” Twenty-six states received a “D” or worse. The states were graded on how they tracked seizures, accounted for and audited forfeiture spending, whether they published annual reports, and how accessible forfeiture records are to the public.
Only the federal Department of Justice, which maintains a comprehensive database of seized assets, received an A grade. However, the Treasury Department received an F. The Institute for Justice recently filed a Freedom of Information Act lawsuit against the Treasury Department after the agency tried to charge the Institute more than $700,000 to see its asset forfeiture tracking database.
The Institute for Justice has filed numerous lawsuits against state, local, and federal agencies challenging asset forfeiture laws and practices.
In many states, policy analysts and journalists must file time-consuming public records requests to see just how much and what kind of property law enforcement is seizing. Even then, the records may be incomplete because the state doesn’t actually track seized property or forfeiture revenues in a substantive way.
For example, the Arizona Center for Investigative Reporting published a report this week that found state law enforcement seized $200 million in personal property, nearly all of it cash, but “regulation of the program is inconsistent, and the reports designed to inform government officials about how and when the money is used are often missing data”:
After analyzing more than 1,300 quarterly financial reports filed by agencies detailing seizures and expenditures from fiscal years 2011 through 2015, AZCIR found that the state commission tasked with compiling statewide civil asset forfeiture figures omitted roughly $20 million, or 16 percent of overall spending, from its reports.
Vague expenditure descriptions also keep the public in the dark about the program. Of what is reported, roughly half of the money spent went to pay police salaries and cover “other operating” expenses. While advocates argue this helps police departments deal with budget cuts, critics of the system say this creates a perverse set of incentives for both law enforcement agencies and the elected officials who set their budgets.
In Mississippi where there are no reporting or tracking requirements, policy analysts for the state legislature found that the Mississippi Bureau of Narcotics, working with local police, seized $4 million in cash, along with cars, guns, and electronics in 2015. But those records did not include local police departments working independently from the Bureau of Narcotics. As I reported earlier this month, tucked in the records were court cases showing Mississippi law enforcement also seized items like furniture and comic book collections.
The Mississippi state legislature is expected to introduce legislation this year that would create new tracking and reporting requirements. The Institute for Justice currently gives the state an “F” grade for its asset forfeiture transparency.
And as I reported last year, records obtained by the Illinois chapter of the American Civil Liberties Union showed Illinois police seizing video game consoles, “179 bottles of miscellaneous soap and shampoo,” a cordless drill and stapler, and a statue of Jesus Malverde, a Robin Hood-esque Mexican folk saint popular among drug runners.
An investigation by Chicago Reader last year found the Chicago Police Department raked in $72 million since 2009 in civil forfeiture revenues, using it as an off-the-books revenue stream to fund surveillance activities for its narcotics unit.
“By itself, improved transparency cannot fix the fundamental problems with civil forfeiture—namely, the property rights abuses it permits and the temptation it creates to police for profit,” Darpana Sheth, an Institute for Justice attorney, said in a statement. “Transparency is no substitute for comprehensive forfeiture reform, but it is still vitally important for bringing forfeiture activity and spending into the light of day.”
After several months of slowing price growth across China’s housing market, if mostly in the lower-tiered cities, China’s National Bureau of Statistics reported that average mothly property prices growth in December continued to slow from November across the 70 cities tracked by the NBS, and this time impacted even the formerly untouchable, “Tier 1” cities.
Housing prices in the primary market increased 0.4% month-over-month after seasonal adjustment (weighted by population) in December, lower than the growth rate in November. Out of 70 cities monitored, 61 saw housing prices increase in December from the previous month, the same number as November.
However it is on an annual, population-weighted basis, where we got the first confirmation that the latest Chinese housing bubble has finally popped, as housing prices across the 70 cities were up 12.7% Y/Y, below the 12.9% annual growth rate in November. This was the first moderation in year-over-year housing price growth after 19 months of continued acceleration.
Looking at city-level data, house price inflation decelerated across all city tiers. In tier-1 cities, December price growth was 0.5% month-over-month after seasonal adjustment, slightly lower than 0.6% in November. Tier 2/3/4 cities saw housing price growth of 0.5%, 0.4% and 0.4% respectively in December, all lower than the growth rates in November.
Goldman notes that it expects the housing market to continue cooling down this year, thus adding a headwind to activity growth, and also becoming a headwind to the recent surge in Chinese PPI, which in turn has led a brief impules of exported inflation around the globe. If and when Chinese housing overshoots to the downside, look forward to the next deflationary wave emanating from China to once again spoil the central bankers’ reflationary party.
Finally, a more practical question: now that the Chinese housing bubble has finally hit its inflection point and is headed downward, prompting the momentum chasers to flee, the question is whether the Chinese stock market is about to become the bubble choice du jour, as happened in mid to late 2014 and early 2015, when the bursting of the home bubble once again pushed all the housing speculators into the stock market with scary, if entertaining, consequences. It may not be a bade idea to buy some deep out of the money calls on the Shenzhen composite, as that is the place where the most degenerate of Chinese gamblers eventually congregate to every time the housing bubble bursts, only to be reincarnated two years down the line.
Less than two days before Donald Trump is inaugurated as the 45th president of the United States, Fed chair Janet Yellen takes to the stage at the Commonwealth Club of San Francisco to explain (after all these years), what "the goals of monetary policy are… and how we pursue them." We can't wait to hear how increasing asset prices to untenable levels, depriving savers of income, and driving the largest wedge between rich and poor since the great depression have been part of the solution…
Headlins from her prepared remarks include:
*YELLEN: U.S. NEAR MAX EMPLOYMENT, INFLATION MOVING TOWARD GOAL
*YELLEN: FED CLOSE TO DUAL GOALS; CAN'T GIVE TIMING OF NEXT HIKE
*YELLEN: SHE AND MOST COLLEAGUES EXPECT `A FEW' RATE HIKES A YR
*YELLEN: NEXT RATE HIKE DEPENDS ON ECONOMY `OVER COMING MONTHS'
*YELLEN: MAKES SENSE TO GRADUALLY REDUCE MONETARY POLICY SUPPORT
*YELLEN SAYS SHE'S HEARING FROM BORROWERS WHO WANT LOWER RATES
*YELLEN SAYS U.S. WAGE GROWTH REMAINS FAIRLY LOW
*YELLEN: WANT TO ENSURE ECONOMY STRONG ENOUGH TO ABSORB SHOCKS
Good afternoon. It is a pleasure to join all of you at the Commonwealth Club for lunch today, not the least because the club and the Federal Reserve have a few things in common. Both organizations, as it happens, have a board of governors and a chair. And both the club's and the Fed's histories extend back more than a century. The club, as many here know, was founded in 1903, and the Federal Reserve a decade later. Perhaps because of our shared origins in the Progressive Era, a period of reform in American life, we hold certain values in common. According to your website, the club is nonpartisan and dedicated to the impartial discussion of issues important to your community and the nation. At the Fed, we too are nonpartisan and focused squarely on the public interest. We strive to conduct our deliberations impartially and base our decisions on factual evidence and objective analysis. This afternoon I will discuss some challenges we've faced in our recent deliberations and may face in the next few years.
Perhaps, though, it is best to start by stepping back and asking, what is–and, importantly, what isn't–our job as the nation's central bank? And how do we go about trying to accomplish it? The Federal Reserve has an array of responsibilities. I'll mention our principal duties and then focus on one–monetary policy, the responsibility that gets the most public attention.
In addition to monetary policy, we–in collaboration with other regulatory agencies at both the federal and state levels–oversee banks and some other financial institutions to ensure they operate safely and soundly and treat their customers fairly. We monitor the financial system as a whole and promote its stability to help avoid financial crises that could choke off credit to consumers and businesses. We also reliably and safely process trillions of dollars of payments for the nation's banks and the federal government and ensure that banks have an ample supply of currency and coin to meet the demands of their depositors. And we work with communities, nonprofit organizations, lenders, educators, and others to encourage financial and economic literacy, promote equal access to credit, and advance economic and community development.
But, as I noted, monetary policy draws the most headlines. What is monetary policy, exactly? Simply put, it consists of central bank actions aimed at influencing interest rates and financial conditions more generally. Its purpose is to help foster a healthy economy. But monetary policy cannot, by itself, create a healthy economy. It cannot, for instance, educate young people, generate technological breakthroughs, make workers and businesses more productive, or address the root causes of inequality. Fundamentally, the energy, ingenuity, and know-how of American workers and entrepreneurs, along with our natural resources, create prosperity. Regulatory policy and fiscal policy–the decisions by the Administration and the Congress about how much and how the government spends, taxes, and borrows–can influence these more fundamental economic pillars.
I've said what monetary policy cannot do. But what can it do? It can lean against damaging fluctuations in the economy. Nearly 40 years ago, the Congress set two main guideposts for that task–maximum employment and price stability. We refer to these assigned goals as our dual mandate. When the economy is weak and unemployment is on the rise, we encourage spending and investing by pushing short-term interest rates lower. As you may know, the interest rate that we target is the federal funds rate, the rate banks charge each other for overnight loans. Lowering short-term rates in turn puts downward pressure on longer-term interest rates, making credit more affordable–for families, for instance, to buy a house or for businesses to expand. Similarly, when the economy is threatening to push inflation too high down the road, we increase interest rates to keep the economy on a sustainable path and lean against its tendency to boom and then bust.
But what exactly do the terms "maximum employment" and "price stability" mean? Does maximum employment mean that every single person who wants a job has a job? No. There are always a certain number of people who are temporarily between jobs after having recently lost a job or having left one voluntarily to pursue better opportunities. Others may have just graduated and have started looking for a job or have decided to return to working–for instance, when their child starts school. This so-called frictional unemployment is evident even in the healthiest of economies.
Then there is structural unemployment–a difficult problem both for the people affected and for policymakers trying to address it. Sometimes people are ready and willing to work, but their skills, perhaps because of technological advances, are not a good fit for the jobs that are available. Or suitable jobs may be available but are not close to where they and their families live. These are factors over which monetary policy has little influence. Other measures–such as job training and other workforce development programs–are better suited to address structural unemployment.
After taking account of both frictional and structural unemployment, what unemployment rate is roughly equivalent to the maximum level of employment that can be sustained in the longer run? The rate can change over time as the economy evolves, but, for now, many economists, including my colleagues at the Fed and me, judge that it is around 4-3/4 percent. It's important to try to estimate the unemployment rate that is equivalent to maximum employment because persistently operating below it pushes inflation higher, which brings me to our price stability mandate.
Does price stability mean having no inflation whatsoever? Again, the answer is no. By "price stability," we mean a level of inflation that is low and stable enough that it doesn't need to figure prominently into people's and businesses' economic decisions. Based on research and decades of experience, we define that level as 2 percent a year–an inflation objective similar to that adopted by most other major central banks.1 Individual prices, of course, move up and down by more than 2 percent all the time. Such movements are essential to a well-functioning economy. They allow supply and demand to adjust for various goods and services. By "inflation," we mean price changes as a whole for all of the various goods and services that households consume.
No one likes high inflation, and it is easy to understand why. Although wages and prices tend to move in tandem over long periods, inflation erodes household purchasing power if it is not matched with similar increases in wages, and it eats away the value of households' savings. So, then, why don't we and other central banks aim for zero inflation? There are several technical reasons, but a more fundamental reason is to create a buffer against the opposite of inflation–that is, deflation. Deflation is a general and persistent decline in the level of prices, a phenomenon Americans last experienced during the Great Depression of the 1930s and one that Japan has confronted for most of the past two decades. Deflation can feed on itself, leading to economic stagnation or worse. It puts pressure on employers to either cut wages or cut jobs. And it can be very hard on borrowers, who find themselves repaying their loans with dollars that are worth more than the dollars they originally borrowed. I am sure we all remember learning in school about farm families in the Great Depression who couldn't pay their mortgages and lost their homes and their livelihoods when crop prices fell persistently.
Another important reason to maintain a modest inflation buffer is that too low inflation impairs the ability of monetary policy to counter economic downturns. When inflation is very low, interest rates tend to be very low also, even in good times. And when interest rates are generally very low, the Fed has only limited room to cut them to help the economy in bad times.
In a nutshell, the Fed's goal is to promote financial conditions conducive to maximum employment and price stability. And I have offered broad-brush definitions of each of those objectives. So where is the economy now, in relationship to them? The short answer is, we think it's close. The economy has come a long way since the financial crisis. As you know, the crisis marked the start of a very deep recession. It destroyed nearly 9 million jobs, and it's been a long, slow slog to recover from it. Unemployment peaked at 10 percent late in 2009, a level unseen for more than 25 years, and didn't move below 8 percent for nearly three years. Falling home prices put millions of homeowners "underwater," meaning they owed more on their mortgages than their homes were worth. And the stock market plunged, slashing the value of 401(k) retirement nest eggs.
The extraordinarily severe recession required an extraordinary response from monetary policy, both to support the job market and prevent deflation. We cut our short-term interest rate target to near zero at the end of 2008 and kept it there for seven years. To provide further support to American households and businesses, we pressed down on longer-term interest rates by purchasing large amounts of longer-term Treasury securities and government-guaranteed mortgage securities. And we communicated our intent to keep short-term interest rates low for a long time, thus increasing the downward pressure on longer-term interest rates, which are influenced by expectations about short-term rates.
Now, it's fair to say, the economy is near maximum employment and inflation is moving toward our goal. The unemployment rate is less than 5 percent, roughly back to where it was before the recession. And, over the past seven years, the economy has added about 15-1/2 million net new jobs. Although inflation has been running below our 2 percent objective for quite some time, we have seen it start inching back toward 2 percent last year as the job market continued to improve and as the effects of a big drop in oil prices faded. Last month, at our most recent meeting, we took account of the considerable progress the economy has made by modestly increasing our short-term interest rate target by 1/4 percentage point to a range of 1/2 to 3/4 percent. It was the second such step–the first came a year earlier–and reflects our confidence the economy will continue to improve.
Now, many of you would love to know exactly when the next rate increase is coming and how high rates will rise. The simple truth is, I can't tell you because it will depend on how the economy actually evolves over coming months. The economy is vast and vastly complex, and its path can take surprising twists and turns. What I can tell you is what we expect–along with a very large caveat that our interest rate expectations will change as our outlook for the economy changes. That said, as of last month, I and most of my colleagues–the other members of the Fed Board in Washington and the presidents of the 12 regional Federal Reserve Banks–were expecting to increase our federal funds rate target a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3 percent.
The term "neutral rate" requires some explaining. It is the rate that, once the economy has reached our objectives, will keep the economy on an even keel. It is neither pressing on the gas pedal to make the car go faster nor easing off so much that the car slows down. Right now our foot is still pressing on the gas pedal, though, as I noted, we have eased back a bit. Our foot remains on the pedal in part because we want to make sure the economic expansion remains strong enough to withstand an unexpected shock, given that we don't have much room to cut interest rates. In addition, inflation is still running below our 2 percent objective, and, by some measures, there may still be some room for progress in the job market. For instance, wage growth has only recently begun to pick up and remains fairly low. A broader measure of unemployment isn't quite back to its pre-recession level. It includes people who would like a job but have been too discouraged to look for one and people who are working part time but would rather work full time.
Nevertheless, as the economy approaches our objectives, it makes sense to gradually reduce the level of monetary policy support. Changes in monetary policy take time to work their way into the economy. Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road–either too much inflation, financial instability, or both. In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession.
The factors I have just discussed are the usual sort that central bankers consider as economies move through a recovery. But a longer-term trend–slow productivity growth–helps explain why we don't think dramatic interest rate increases are required to move our federal funds rate target back to neutral. Labor productivity–that is, the output of goods and services per hour of work–has increased by only about 1/2 percent a year, on average, over the past six years or so and only 1-1/4 percent a year over the past decade. That contrasts with the previous 30 years when productivity grew a bit more than 2 percent a year. This productivity slowdown matters enormously because Americans' standard of living depends on productivity growth. With productivity growth of 2 percent a year, the average standard of living will double roughly every 35 years. That means our children can reasonably hope to be better off economically than we are now. But productivity growth of 1 percent a year means the average standard of living will double only every 70 years.
Economists do not fully understand the causes of the productivity slowdown. Some emphasize that technological progress and its diffusion throughout the economy seem to be slower over the past decade or so. Others look at college graduation rates, which have flattened out after rising rapidly in previous generations. And still others focus on a dramatic slowing in the creation of new businesses, which are often more innovative than established firms. While each of these factors has likely played a role in slowing productivity growth, the extent to which they will continue to do so is an open question.2
Why does slow productivity growth, if it persists, imply a lower neutral interest rate? First, it implies that the economy's usual rate of output growth, when employment is at its maximum and prices are stable, will be significantly slower than the post-World War II average. Slower economic growth, in turn, implies businesses will see less need to invest in expansion. And it implies families and individuals will feel the need to save more and spend less. Because interest rates are the mechanism that brings the supply of savings and the demand for investment funds into balance, more saving and less investment imply a lower neutral interest rate. Although we can't directly measure the neutral interest rate, it is something that can be estimated in retrospect. And, as we have increasingly realized, it has probably been trending down for a while now. Our current 3 percent estimate of the longer-run neutral rate, for instance, is a full percentage point lower than our estimate just three years ago.
You might be thinking, what does this discussion of rather esoteric concepts such as the neutral rate mean to me? If you are a borrower, it means that, although the interest rates you pay on, say, your auto loan or mortgage or credit card likely will creep higher, they probably will not increase dramatically. Likewise, if you are a saver, the rates you earn could inch higher after a while, but probably not by a lot. For some years, I've heard from savers who want higher rates, and now I'm beginning to hear from borrowers who want lower rates. I can't emphasize strongly enough, though, that we are not trying to help one of those groups at the expense of the other. We're focused very much on that dual mandate I keep mentioning. At the end of the day, we all benefit from plentiful jobs and stable prices, whether we are savers or borrowers–and many of us, of course, are both.
Economics and monetary policy are, at best, inexact sciences. Figuring out what the neutral interest rate is and setting the right path toward it is not like setting the thermostat in a house: You can't just set the temperature at 68 degrees and walk away. And, because changes in monetary policy affect the economy with long lags sometimes, we must base our decisions on our best forecasts of an uncertain future. Thus, we must continually reassess and adjust our policies based on what we learn.
That point leads me to repeat what I said when I began: Like the Commonwealth Club, the Federal Reserve was created more than a century ago during an era of government reform to serve the public interest. The structure established for the Federal Reserve back then intentionally insulates us from short-term political pressures so we can focus on what's best for the American economy in the longer run. I promise you, with the sometimes imperfect information and evidence we have available, we will do just that by making the best decisions we can, as objectively as we can.
There is clear-cut evidence that a foreign power has interfered in our country’s elections. It spied; it spent; it spread disinformation. It was the United Kingdom, and the campaigns it attempted to influence took place in 1940.
This story has been told in such books as Desperate Deception and The Secret History of British Intelligence in the Americas, and now Politico has run an article about it. Hoping for help against the Germans, the British promoted candidates they found congenial to their interests. (They helped push Wendell Willkie for the Republican presidential nomination, for example, so that a pro-British internationalist would sit in the White House even if Franklin Roosevelt lost.) But most of their electoral efforts were aimed less at advancing politicians they liked than at tearing down ones they didn’t. This was part of a larger program of espionage and propaganda that lasted well after Election Day.
As you’ve probably guessed, Politico‘s newspeg is Russia’s alleged machinations in last year’s presidential election. But the article doesn’t say much about what we might learn from the ’40s, preferring to tell the tale rather than tease out its lessons. So let’s think about what exactly this story suggests, beyond the obvious point that yes, foreign nations have been known to influence our politics. Sometimes a bona-fide historical conspiracy can shed some light on a modern conspiracy theory:
1. The British gave covert assistance to candidates, but they didn’t pull the candidates’ strings. The takeaway from the Politico story should not be that Willkie or Roosevelt was some sort of British agent. They had their own reasons for wanting to back the U.K. in Europe’s conflict, as did many other members of the American establishment. London didn’t control them; it recognized them as allies.
That point may seem too obvious to bother spelling it out. Yet a great deal of the commentary around Moscow and the election leaps looking for evidence of interference to assuming that Donald Trump is little more than a stooge—as Hillary Clinton put it, Putin’s “puppet.” This in turn yields commentary in which the central issue is whether Trump’s allies or even critics are doing “what Putin wants,” rather than whether there are good reasons for anyone else to want it. Which leads us to observation #2:
2. Whether a policy is a good idea is a separate question from whether a foreign power is pushing it. Needless to say, the fact that Britain worked behind the scenes to pull Washington into World War II does not tell us much about whether entering World War II was a good idea. The same goes for the Russia-friendly policies that Trump might pursue. The possibilities on the table include some notions that I like (such as rethinking NATO) and some that I hate (such as allying with Moscow in Syria). If it turns out that Trump’s team had more contacts with the Kremlin than they’re letting on, that isn’t going to change my positions on those issues; the fundamental arguments are going to be the same.
Furthermore, it’s not as though there’s only one group of plotters at work here. Last year Ukraine tried to help Hillary Clinton. During the run-up to World War II, Germany made its own efforts to influence American public opinion. Sometimes you’re going to have foreign conspirators on your side no matter where you come down on an issue. Better to pick your side on the merits.
3. This isn’t a “Post-Truth Era.” That would require a Truth Era that never existed. I know I keep hammering this point, but a lot of people out there seem to think “fake news” on Facebook is some radical departure from the past. So if nothing else, read Politico‘s feature for stories like this one:
[British Security Coordination (BSC)] created, funded and operated the Non-Partisan Committee to Defeat Hamilton Fish, which among other activities, circulated a pamphlet juxtaposing Fish, Adolf Hitler and Nazis. Another photo appeared to show Fish meeting with Fritz Kuhn, the “American Hitler” who led the German-American Bund and was, at the time, serving a prison sentence for embezzlement. Contrary to the caption—”Hamilton Fish inspecting documents with Fritz Kuhn”—the Republican congressman had never met privately with Bund leader. The photo had been taken at a 1938 public hearing that Congressman Fish had organized to discuss a proposed ban on paramilitary groups like the Bund.
Another bit of British-engineered fake news had an ironic twist, accusing Fish of being a pawn of a foreign power. They alleged that Nazis funneled money to Fish by renting his properties at inflated high rates as a means of subsidizing pro-German propaganda efforts. On October 21, Drew Pearson and Robert Allen reported the story in their hugely influential Washington Merry-go-Round column—a true October surprise.
Or this:
The British government had a well-oiled, coordinated, worldwide strategy during World War II for generating and disseminating rumors, which it called “sibs,” short for sibilare, the Latin word for whisper or hiss. Many of the sibs were silly or outlandish—for example, rumors that man-eating sharks from Australia had been deposited in the English Channel to consume downed German aviators—but British intelligence took them extraordinarily seriously. “The object of propaganda rumours is in no sense to convey the official or semi-official views of H.M.G. [His Majesty’s Government] by covert means to officials in the countries concerned,” read one classified wartime report. “It is rather to induce alarm, despondency and bewilderment among the enemies, and hope and confidence among the friends, to whose ears it comes.”
New sibs were approved by an organization called the Underground Propaganda Committee (UPC), which met weekly in London during the war. While rumors spread in Europe by word of mouth, in the U.S., they were disseminated through a network of friendly reporters and, starting in the spring of 1941, by the Overseas News Agency, a news service that received subsidies from, and was controlled by, the BSC.
The next time someone tells you we live in a post-truth age, remember the sibs. We’ve been floating in an ocean of disinformation for years. If it feels like there’s more hoaxes now, that may be a sign that lies are more common. But it might merely mean we’re more aware of the lying.
For decades, Americans have managed to accept the existence of “soy milk” without melting down into existential confusion over the meaning of dairy. And yet—never content to leave to common sense what could be legislated—some federal lawmakers seek to clamp down on the use of the term milk to refer to non-dairy beverages.
“Imitation products have gotten away with using dairy’s good name for their own benefit,” said Baldwin in a press release. “The DAIRY PRIDE Act would require the FDA to issue guidance for nationwide enforcement of mislabeled imitation dairy products within 90 days and require the FDA to report to Congress two years after enactment to hold the agency accountable for this update in their enforcement obligations.”
The statement also quotes Ellsworth Cooperative Creamery’s Jerry Croes, who said it’s “about time someone stands up for the American Dairy farmer. … It’s not fair that the name milk should be used by non-dairy drinks to further erode what little profit we have.”
But plenty of information on non-dairy milk labels indicates that they are not actually dairy—in fact, that’s generally the selling point. If dairy milk sales are down, it’s not because U.S. consumers are, en masse, too stupid to realize that soy milk and such aren’t animal products, but because the past decade has seen a proliferation of plant-based alternatives to traditional cow’s milk come on to the market, and consumers are—for a host of reasons, including lactose intolerance, nutritional benefits, animal-welfare concerns, and taste preferences—flocking to them.
As Baylen Linnekin noted here recently, “Americans are drinking many types of milk they’ve long consumed—cow, goat, camel, etc.—and newer types as well, including almond, coconut, hemp, rice, and soy,” making “rules that reserve use of the term ‘milk’ for dairy-cow milk alone” more misleading from a consumer perspective. “Perhaps rules should be established that force dairy-cow makers to modify their use of the term ‘milk’ with the word ‘cow,’ in a way that would be consistent with every other use of the term (‘goat milk,’ ‘almond milk,’ etc.),” Linnekin suggested.
Linnekin’s melting-pot-of-milks column came in response to another recent move by federal lawmakers to limit the term to milk to the stuff that comes from cows. In December, more than 30 members of Congress petitioned the U.S. Food and Drug Administration (FDA), which defines milk as “the lacteal secretion . . . obtained by the complete milking of one or more healthy cows,” to enforce this definition by going after non-dairy “milks.”
But without any evidence that consumers are harmed by the non-dairy beverages being described as milk, the whole thing smacks of simple dairy-industry protectionism. In the end, forcing producers cow-milk alternatives to ditch the term milk won’t increase consumer clarity or safety but simply bring unnecessary costs to these companies (and all American taxpayers) while further muddying the milk marketplace.
The title is cryptic but it pertains to a speech Biden gave in July that he wishes he repeated more often instead of attacking Trump.
Biden is afflicted with guilt and worry.
About not talking about what Hillary would do, instead of blasting Trump.
About not running for president himself. He thinks he would have won.
About affordable health care. “I’m not prepared to bet my granddaughter’s college tuition, but it’s less likely to be undone than frayed on the edges,” moans Biden.
About the nonsensical prospect of Vladimir Putin fulfilling his dream of re-establishing Russian hegemony over Eastern Europe.
About Syria.
About the glass ceiling and the failure of the first black president to pass the baton to the first female president.
If that’s is not enough sap for you, Biden says “I’ll run” in 2020 “if I can walk.”
Biden did offer this tidbit on Trump ‘It’s like a rubik’s cube trying to figure this guy out. We have no freakin’ idea what he’s gonna do.’
The sap concluded …
After Air Force Two touched down on the tarmac in Wilmington, I asked him about a line he liked to use before the election. “So do you still believe what your grandfather said, that God looks out for drunken Irishmen and the United States of America?” Biden said he wasn’t sure about the Irishmen, but he was about the country. “I have to believe that,” he said. “There’s no sense being in this business unless you’re an optimist.
Unknown vs. Known
Although we do not know what Trump will do, we likely do know what Hillary would have done, and nearly all of it bad, especially on the warmongering front.
I would rather deal with the unknown. Trump is likely to get at least some things right, and Russia appears to be one of them.
In the very definition of ‘irony’, The FTC is preparing to file charges against Irish drug maker Mallinckrodt for allegedly using its monopoly to jack up the price of a drug used to treat lupus and multiple sclerosis by 2165%, after none other than Martin Shkreli filed suit.
As The New York Post reports,The FTC has been investigating Mallinckrodt and its Questcor unit for several years — shortly after Shkreli, then the chief executive of drugmaker Retrophin, filed suit in 2014 against the California company accusing it of acquiring the drug, Synacthen, from Novartis — and then shutting it down to protect its profitable rival drug.
Shkreli, as the chief executive of Turing Pharmaceuticals in 2015, drew national derision when he acquired the rights to Daraprim, a 50-year old-plus drug used to treat parasitic infections, and promptly increased the price to $750 from $13.50.
The 33-year old was indicted in December 2015 on securities law fraud — for allegedly cheating investors in a hedge fund he was running.
The FTC has been investigating whether the deal to acquire Synacthen gave Questcor a monopoly. Mallinckrodt bought Questcor in 2014 for $5.8 billion.
President Obama’s FTC, in its waning days, is likely to file a suit against Mallinckrodt for monopolizing the market for Acthar Gel, also used to control spasms in infants, a Washington source not directly involved in the case said.
Acthar Gel costs $28,000 for a vial, an increase from $1,235 a vial in 2005, according to published reports.
MNK is halted, limit down at its lowest price since Nov 2013…
Mallinckrodt warned its investors in June of the FTC probe, saying it “could have a material adverse effect on its financial condition, results of operations and cash flows.”
With the Inauguration just days away, “PizzaGate” has been thrust back into the spotlight for the first time since the election thanks to reporter Ben Swann of CBS46 in Atlanta – only this time, it’s not a puff piece labeling it a conspiracy theory, or another New York Times article going out of it’s way to defend Comet Ping Pong. Swann lays out the players, including Comet Ping Pong owner James Alefantis (who was in a relationship with CTR-mastermind David Brock), as well as pedophile terminology, logos, and even some of the pedo-friendly musical acts featured at the restaurant. Swann even mentions John Podesta’s close relationship with convicted pedophile Dennis Hastert, as well as the creepy Podesta art.
Take a look :
Within hours of it’s airing, Wikileaks tweeted a link to the broadcast, along with the FBI’s 2007 “pedphile symbols” guide.
Is this the opening salvo in the next phase of #PizzaGate from emboldened journalists who no longer fear John Podesta’s wrath? The answer is anyone’s guess, however, even if Ben Swann isn’t taken out with a Polonium pellet – he will forever be encumbered by his gigantic balls.
Content originally generated at iBankCoin.com * Follow on Twitter @ZeroPointNow
[Editor’s note: Tim Price, London-based wealth manager and co-manager of the VT Price Value Portfolio, is filling in for Simon today.]
Here’s some food for thought.
There’s been so much discussion over the past few years, and 2016 in particular, about the roaring US economy and stellar performance of US companies.
As an example, we are constantly told about the cash piles that US companies have hoarded around the world.
This is meant as an indicator that US companies are accumulating huge profits.
It turns out this is not entirely true.
As Andrew Lapthorne of Societe Generale pointed out at his bank’s investment conference last week, that giant pile of cash is concentrated in the hands of a few companies.
While the largest 25 US companies are rolling in cash, the remaining 99% of corporate North America barely has any.
Specifically, the 25 largest companies in the US have an average cash balance of over 150% of their average debt levels.
But the cash average for every other company averages about 16%, a nearly 10x difference.
It’s a similar story of concentration when it comes to corporate profitability.
The biggest US companies remain very profitable, with an average return on equity that has been very stable at around 16% since the early 1990s.
But the trend of profitability for the remaining 2500 US stocks has been deteriorating for the past two decades, with an average return on equity falling to just 6%.
In other words, all the supposed success of US companies is extremely concentrated, and the health of the overall US market has been obscured by the performance of a handful of mega-cap companies that are selling at record levels.
As value investors, this gives us reason to stay away.
Value investors are bargain shoppers; we’re on the lookout for high quality assets, especially profitable, growing businesses, whose shares are selling at an obvious discount.
As Warren Buffett has pointed out countless times, most people by nature are bargain shoppers.
Everyone wants a great deal, whether it’s on a new car, family vacation, or online purchase.
For some reason, though, that psychology doesn’t apply to investment decisions.
It’s as if people feel more comfortable buying shares of a company that’s popular, expensive, and overvalued.
In the long run, value investing is what matters.
Stock prices fluctuate wildly from day to day, and even year to year.
But a value investing strategy dramatically outperforms in the long run.
As the following chart shows, $10,000 invested in the broader US stock market in 1986 would be worth $291,334.08 today.
That’s a fantastic return on investment.
But had you invested in value stocks, that same $10,000 would be worth $449,358.86 today, over 50% more.
Value stocks beat other asset classes as well—bonds, international stocks, precious metals, real estate, etc.
The approach works.
The difficult part, of course, is finding that bargain discount business, particularly in a sea of overvalued share prices.
But this is when an astute investor starts looking abroad. There are always pockets of value somewhere in the world.
Japan remains a great example today.
Having endured a more than two-decade deflationary recession, Japanese corporate balance sheets are now among the strongest in the world.
Yet given the still inexpensive share prices, Japanese stocks offer something comparatively rare in modern investment markets: a genuine margin of safety.
One intriguing indicator of the Japanese stock market is its low “dividend payout ratio” compared to other countries around the world.
A company’s dividend payout ratio represents the portion of its profits that it pays to its shareholders each year.
Some companies pay a higher portion of their profits to shareholders, while others retain their profits to reinvest back in the business.
Japanese companies, on average, have THE lowest dividend payout ratios in the world, at less than 40%.
By contrast, British companies’ dividend payout ratios exceed 100%. This is hardly sustainable.
As an example, British company GlaxoSmithKline, popular among large equity income funds, made £1.9 billion in 2015… but paid out £3.8 billion in dividends that same year.
No company can indefinitely continue to pay its shareholders more than it makes in profit.
The Japanese stock market is at the other extreme.
Flush with cash, Japanese companies are now able to return capital to shareholders, either through dividends, or through share buybacks.
(When a company uses its cash pile to buy its own stock, the share price tends to rise, which benefits shareholders.)
Stock buybacks in Japan are now accelerating.
Yet unlike in the US and UK where companies go into debt to fund their dividends and share buybacks, Japanese companies can buy back their shares and pay dividends out of cash and profits.
(It may not be too much of a surprise to learn that Japan represents the single largest country exposure in our value fund.)
I’m not trying to encourage you to rush out right now and buy Japanese stocks.
The larger point is that successful investors do not constrain themselves by something as antiquated as geography.
There’s always a great deal to be had somewhere in the world.
And putting in a little bit of effort and education to find it can make an enormous difference in your portfolio.
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