Tag: finance

Authored by Mark Spitznagel (author of The Dao of Capital), originally posted at Forbes,

In the midst of the epic dysfunction known as the 16-day government shutdown, we lost sight of the fundamental issue whose inescapable logic cuts across politics and party lines: We are feeding the rapacious appetites of our current selves (we want what we want now) at the dire and escalating cost to our future selves (whom, we assume, will somehow have the patience and resources to bear the burden). If that sounds unworkable and unsustainable, it is.

If government spending continues apace, feeding the monster known as the national debt will swallow the resources of our future selves, whether we personify that concept as ourselves at retirement or our children who will inherit an astronomical bill for our rash and compulsive spending.

We cannot expect Washington to solve these problems, because politicians are, by definition, creatures of the moment who want to please their current constituents who will re-elect them, rather than worrying about future constituents who cannot vote. It’s up to us to advocate for our future selves, both personal and progeny.

As simple and logical as this might sound, it is nigh onto impossible to do. We simply can’t help ourselves, because of our human nature and a behavioral concept—applicable to most everything in life, including my bailiwick of investing—called time inconsistency, or hyperbolic discounting. Simply stated, we discount the present now more than we expect to later—that is, we act one way now—impatient, demanding our appetites (food, drink, investment returns) be met at all costs—while deluding ourselves that, in the future, we’ll somehow be patient and better able to act rationally and take care of problems. But when later becomes now, we are just as impatient. The easiest and most universal example is dieting. We indulge now, telling ourselves we’ll diet tomorrow. The parallels to our bloated spending and ballooning debt are too obvious to mention.

The root of the problem goes to our human origins, when overlooking immediate needs was reckless and life-threatening. Consider the 1.8-million-year-old pre-human skull unveiled recently, with its massive jaw and big teeth, but small brain. I’m certainly no expert in human evolution, but it doesn’t take much to imagine this ancestral precursor was more concerned about eating now than preparing for the future.

Yet, humans did overcome that predilection, through making tools, domesticating animals, growing and storing grains, smelting ores and metals, and eventually amassing great entrepreneurial capital structures that required upfront investment and lost opportunity costs in the moment. This became possible because objectives switched, from satisfying immediate appetites to gaining an intermediate, positional advantage for the future. My shorthand phrase for that is becoming ever-more roundabout.

Our only hope to stop the battle between present and future selves is to adopt a more roundabout perspective, seeing time differently in an intertemporal dimension. When we are no longer hyper-focused on the moment, we can pursue proximal aims that look across slices of time. We avoid eating, drinking, acting, and spending as if there is no tomorrow, so that we can, indeed, have better, healthier, and more prosperous tomorrow.

Admittedly, grasping these concepts about our human nature and our perplexing time inconsistency requires a mental leap. By becoming more aware, though, we give ourselves a roadmap with which to navigate the minefields of our own human nature. With an intertemporal perspective we can avoid the mad scramble for 11th hour solutions, which in politics always equals crisis.

Since we cannot expect Washington and its stable of political animals to do the work, we must press for it ourselves, by sending the message to Capitol Hill: Taking on ever bigger amounts of debt is mathematically unsustainable. Using the Federal Reserve and its zero-interest-rate policy to kick the proverbial can down the road only postpones the pain, which intensifies with the passage of time. The reckoning will be excruciating.

When another shutdown looms in the months ahead, we have to keep in mind who the battle is really between: our present selves versus our future selves. We who can think, act, and vote now, must advocate for the currently disenfranchised who will pay the bill.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ykxdeyMI4K0/story01.htm Tyler Durden

Authored by Mark Spitznagel (author of The Dao of Capital), originally posted at Forbes,

In the midst of the epic dysfunction known as the 16-day government shutdown, we lost sight of the fundamental issue whose inescapable logic cuts across politics and party lines: We are feeding the rapacious appetites of our current selves (we want what we want now) at the dire and escalating cost to our future selves (whom, we assume, will somehow have the patience and resources to bear the burden). If that sounds unworkable and unsustainable, it is.

If government spending continues apace, feeding the monster known as the national debt will swallow the resources of our future selves, whether we personify that concept as ourselves at retirement or our children who will inherit an astronomical bill for our rash and compulsive spending.

We cannot expect Washington to solve these problems, because politicians are, by definition, creatures of the moment who want to please their current constituents who will re-elect them, rather than worrying about future constituents who cannot vote. It’s up to us to advocate for our future selves, both personal and progeny.

As simple and logical as this might sound, it is nigh onto impossible to do. We simply can’t help ourselves, because of our human nature and a behavioral concept—applicable to most everything in life, including my bailiwick of investing—called time inconsistency, or hyperbolic discounting. Simply stated, we discount the present now more than we expect to later—that is, we act one way now—impatient, demanding our appetites (food, drink, investment returns) be met at all costs—while deluding ourselves that, in the future, we’ll somehow be patient and better able to act rationally and take care of problems. But when later becomes now, we are just as impatient. The easiest and most universal example is dieting. We indulge now, telling ourselves we’ll diet tomorrow. The parallels to our bloated spending and ballooning debt are too obvious to mention.

The root of the problem goes to our human origins, when overlooking immediate needs was reckless and life-threatening. Consider the 1.8-million-year-old pre-human skull unveiled recently, with its massive jaw and big teeth, but small brain. I’m certainly no expert in human evolution, but it doesn’t take much to imagine this ancestral precursor was more concerned about eating now than preparing for the future.

Yet, humans did overcome that predilection, through making tools, domesticating animals, growing and storing grains, smelting ores and metals, and eventually amassing great entrepreneurial capital structures that required upfront investment and lost opportunity costs in the moment. This became possible because objectives switched, from satisfying immediate appetites to gaining an intermediate, positional advantage for the future. My shorthand phrase for that is becoming ever-more roundabout.

Our only hope to stop the battle between present and future selves is to adopt a more roundabout perspective, seeing time differently in an intertemporal dimension. When we are no longer hyper-focused on the moment, we can pursue proximal aims that look across slices of time. We avoid eating, drinking, acting, and spending as if there is no tomorrow, so that we can, indeed, have better, healthier, and more prosperous tomorrow.

Admittedly, grasping these concepts about our human nature and our perplexing time inconsistency requires a mental leap. By becoming more aware, though, we give ourselves a roadmap with which to navigate the minefields of our own human nature. With an intertemporal perspective we can avoid the mad scramble for 11th hour solutions, which in politics always equals crisis.

Since we cannot expect Washington and its stable of political animals to do the work, we must press for it ourselves, by sending the message to Capitol Hill: Taking on ever bigger amounts of debt is mathematically unsustainable. Using the Federal Reserve and its zero-interest-rate policy to kick the proverbial can down the road only postpones the pain, which intensifies with the passage of time. The reckoning will be excruciating.

When another shutdown looms in the months ahead, we have to keep in mind who the battle is really between: our present selves versus our future selves. We who can think, act, and vote now, must advocate for the currently disenfranchised who will pay the bill.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ykxdeyMI4K0/story01.htm Tyler Durden

It’s no secret by now that governments in Europe, Japan and America have spent and borrowed beyond their means. As IceCap’s Keith Dicker notes, including both current debt and future unfunded liabilities, it is estimated America owes over $87 trillion dollars, while the Eurozone countries are on the hook for over $89 trillion. That’s a fistful of dollars. From a tax perspective, the incapacity of these super economic powers, becomes all the more clear. America’s annual tax revenue is only $2.5 trillion, while in Europe, they manage to squeak out roughly $5 trillion. From this view, America is leveraged 34.8x their tax revenues, while the Eurozone is leveraged at 17.8x their tax revenue. As Keith points out in his excellent letter, for the US, Japan, and Europe, Elvis has very much left the building on getting back to ‘normal’.

Since we have all become numbed by talks of billions and trillions, let’s put these numbers on the dinner plate of the average American family. According to the OECD, the average American family has income of about $31,000 per year. If this average family borrowed like the American government, it would have over $1.078 million in loans to pay. Good luck finding a bank to lend you that amount of money.

…

European, American and Japanese governments, on the other hand, continue to spend more than what they collect in taxes. Naturally, this means the money owed by these countries is always increasing. More worrisome is the fact that when interest rates eventually rise, the interest owed on this debt increases exponentially.

Even more worrisome, considering these countries are deeply committed to defying the laws of mathematics and never defaulting on their debt, only one outcome is assured – taxes have to increase, and government services have to decrease. In the end, everyone has to pay. Despite what Brussels may say, there is no magic solution.

The chart above shows the trend in taxes since 2010, for simplicity just note there are an awful lot of green “up” arrows. Don’t expect this to change anytime soon.

If the economy really was clipping along at an ear to ear grinning pace, several things would have happened by now. First up, central banks in the US, Canada, Britain, Europe and Switzerland would have all begun to raise interest rates. Not too mention, the money printing machines would have also begun to grind slower.

 

 

In addition, employment should be going gangbusters, while everyone’s favourite measurement of a stronger economy – inflation would be accelerating as well. Yet, none of these events are occurring.

Yet, the real questions behind the upcoming tax hikes are 1) why it will happen and 2) what will be taxed.

And more importantly – what is the Super Tax?

Full IceCap Asset Management letter below:

 

IceCap Asset Management Limited Global Markets 2013.10.pdf

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ERtocBGGFDA/story01.htm Tyler Durden

It’s no secret by now that governments in Europe, Japan and America have spent and borrowed beyond their means. As IceCap’s Keith Dicker notes, including both current debt and future unfunded liabilities, it is estimated America owes over $87 trillion dollars, while the Eurozone countries are on the hook for over $89 trillion. That’s a fistful of dollars. From a tax perspective, the incapacity of these super economic powers, becomes all the more clear. America’s annual tax revenue is only $2.5 trillion, while in Europe, they manage to squeak out roughly $5 trillion. From this view, America is leveraged 34.8x their tax revenues, while the Eurozone is leveraged at 17.8x their tax revenue. As Keith points out in his excellent letter, for the US, Japan, and Europe, Elvis has very much left the building on getting back to ‘normal’.

Since we have all become numbed by talks of billions and trillions, let’s put these numbers on the dinner plate of the average American family. According to the OECD, the average American family has income of about $31,000 per year. If this average family borrowed like the American government, it would have over $1.078 million in loans to pay. Good luck finding a bank to lend you that amount of money.

…

European, American and Japanese governments, on the other hand, continue to spend more than what they collect in taxes. Naturally, this means the money owed by these countries is always increasing. More worrisome is the fact that when interest rates eventually rise, the interest owed on this debt increases exponentially.

Even more worrisome, considering these countries are deeply committed to defying the laws of mathematics and never defaulting on their debt, only one outcome is assured – taxes have to increase, and government services have to decrease. In the end, everyone has to pay. Despite what Brussels may say, there is no magic solution.

The chart above shows the trend in taxes since 2010, for simplicity just note there are an awful lot of green “up” arrows. Don’t expect this to change anytime soon.

If the economy really was clipping along at an ear to ear grinning pace, several things would have happened by now. First up, central banks in the US, Canada, Britain, Europe and Switzerland would have all begun to raise interest rates. Not too mention, the money printing machines would have also begun to grind slower.

 

 

In addition, employment should be going gangbusters, while everyone’s favourite measurement of a stronger economy – inflation would be accelerating as well. Yet, none of these events are occurring.

Yet, the real questions behind the upcoming tax hikes are 1) why it will happen and 2) what will be taxed.

And more importantly – what is the Super Tax?

Full IceCap Asset Management letter below:

 

IceCap Asset Management Limited Global Markets 2013.10.pdf

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ERtocBGGFDA/story01.htm Tyler Durden

Originally posted at Represent.us blog,

The U.S. House just passed a bill called H.R. 992 – the Swaps Regulatory Improvement Act – that was literally written by mega-bank lobbyists. It repeals the laws passed in 2010 to prevent another meltdown like the one that crashed our economy in 2008. The repeal was co-sponsored by a former Goldman Sachs executive and passed with bipartisan support from some of the House’s largest recipients of Wall Street cash. It’s so appalling… so unbelievable… so blatantly corrupt… that you’ve got to see it to believe it:

In 2010, Congress passed the “Dodd-Frank” law to clamp down on risky “derivatives trading” that led to the financial collapse of 2008. Dodd-Frank was weakened by banking lobbyists from the start and has been under attack by those lobbyists ever since. Now a new law written by Citigroup lobbyists (we couldn’t make this stuff up if we tried) exempts derivatives trading from regulation, and was passed this week by the House of Representatives with broad bipartisan support.

It sounds bad… but don’t worry, it gets much, much worse:

• The New York Times reports that 70 of the 85 lines in the new House bill were literally written by Citigroup lobbyists (Citigroup was one of the mega-banks that brought our economy to its knees in 2008 and received billions in taxpayer money.)
• The same report also revealed “two crucial paragraphs…were copied nearly word for word.” You can even view the original documents and see how Citigroup’s lobbyists redrafted the House Bill, striking out ideas they didn’t like and replacing them with ones they did.
• The bills are sponsored by Randy Hultgren (R – IL), and co-sponsored by Rep. Jim Himes (D-CT) and others. Himes is a former Goldman Sachs executive, and chief fundraiser for the Democratic Congressional Campaign Committee.
• Maplight reports that the financial industry is the top source of campaign funding for 6 of the bills’ 8 cosponsors.
• Maplight’s data shows that members of the House received $22,425,740 million from interest groups that support the bill — that’s 5.8 times more than it received from interest groups opposed.
• “House aides, when asked why Democrats would vote for this proposal even though the Obama administration opposes it, offered a political explanation. Republicans have enough votes to pass it themselves, so vulnerable House Democrats might as well join them, and collect industry money for their campaigns.” — New York Times

Yep, it’s actually that bad. For the full story, check out this revealing piece by Represent.Us Communications Director Mansur Gidfar. You can also find out if your Rep. voted for H.R.992 here.

We elect Representatives to the House to represent us, the people — but both parties now refuse to do the job we elected them to do. And they won’t until we force them to. The American Anti-Corruption Act would stop this corruption, and Represent.Us is the movement behind the Act. Together, we can make blatant corruption illegal with simple reforms. It’s common sense that elected officials should be barred from collecting money from the industries they regulate.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/LvA0dbEOQbY/story01.htm Tyler Durden

Just a month ago, the President and his administration gloated as Republican support plumbed new record low depths amid the shutdown debacle. Just last week, however, amid the ongoing snafu that is the Obamacare launch, the President’s approval rating itself dropped to an all-time low (though the media was oddly quiet about that). This week sees another milestone on the verge of being broken as the “glitches” – both technological and physical – continue, stocks surge, and employment stagnates five years after the end of the recession… the President’s disapproval rating is within 1 point of its record high.

 

 

(h/t @Not_Jim_Cramer)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/v-ZyUDDO7Sw/story01.htm Tyler Durden

By EconMatters

 

This is one of the few times where the benefactors or professionals who benefit from the bubbles, in this case created by the Federal Reserve, fully and openly acknowledge that stock prices and certain other asset classes are completely divorced from fundamental valuations.

 

 

© EconMatters All Rights Reserved | Facebook | Twitter | Post Alert | Kindle

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xqTCGu6AFnw/story01.htm EconMatters

A disturbing story is starting to make waves once again on the internet, according to Ben Swann who notes, you can now pay for Starbucks with food stamps. The story, which previously aired on FOX12, sees Jackie Fowler, a Salem, Oregon food stamp recipient, went inside the luxury Starbucks franchise located inside of a Safeway grocery store with the local Fox News station filming. She purchased one tall Frappaccino and a slice of pumpkin loaf. Her total was $5.25. She slid out her Oregon Trail food stamp card, paid in part by the federal government, and handed it to the cashier who processed the transaction. Fowler only made the purchase to assist FOX but it indicates just how deeply the ECBT card has become embedded in US society when, as she notes, coffee's "overpriced as it is, that's money that somebody could be eating with."

 

The original FOX 12 Clip:

KPTV – FOX 12

 

And as Ben Swann adds:

“They’re overpriced as it is,” said Fowler of the luxury brand. “That’s money that somebody could be eating with — a loaf of bread, a gallon of milk.” Fowler says the program is in need of reform due to the abuse.

 

It doesn’t seem like management is trying to discourage the use of food stamps inside of the Starbucks. In fact, they are advertising it, as seen in the sign.

 

 

Corporate stores do not accept food stamps. However, because the store is run by the grocery chain it is offered as a “grocery item”. Such Starbucks outlets are located inside of  airports, malls, colleges, Target, Alberstons, Fred Meyer and other chain grocery stores.

 

The initial report from FOX12,

…

 

"There are a lot of loopholes," she said.

 

A spokesman with Safeway told FOX 12 the store recently made the change as an added convenience to customers.

 

"We think that compliance with state laws is something we can easily do," said Dan Floyd, of Safeway.

 

According to federal Supplemental Nutrition Assistance Program (SNAP) guidelines, people cannot buy foods that will be eaten in the store or hot foods. However, luxury items that are allowed include soft drinks, candy, cookies, ice cream, even bakery cakes and energy drinks that have a nutrition facts label.

 

While FOX 12 learned you cannot use an Oregon Trail Card at a corporate, stand-alone Starbucks location, the Starbucks inside Safeway is run by the store. Fowler tried to use her card at a stand-alone Starbucks, but was denied.

 

However, the register at the in-store location considers the purchase a "grocery item" and as long as it's cold, it's allowed, according to store employees.

 

"It shouldn't be allowed, whether it's a cold item or not," said Fowler. "It's a luxury item. If you really want one (Frappuccino), save your money and go buy one. Don't use the system.

 

A spokesman with the State Department of Human Services told FOX 12 he wasn't aware this practice was happening.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-ijJZBLmYJA/story01.htm Tyler Durden

A disturbing story is starting to make waves once again on the internet, according to Ben Swann who notes, you can now pay for Starbucks with food stamps. The story, which previously aired on FOX12, sees Jackie Fowler, a Salem, Oregon food stamp recipient, went inside the luxury Starbucks franchise located inside of a Safeway grocery store with the local Fox News station filming. She purchased one tall Frappaccino and a slice of pumpkin loaf. Her total was $5.25. She slid out her Oregon Trail food stamp card, paid in part by the federal government, and handed it to the cashier who processed the transaction. Fowler only made the purchase to assist FOX but it indicates just how deeply the ECBT card has become embedded in US society when, as she notes, coffee's "overpriced as it is, that's money that somebody could be eating with."

 

The original FOX 12 Clip:

KPTV – FOX 12

 

And as Ben Swann adds:

“They’re overpriced as it is,” said Fowler of the luxury brand. “That’s money that somebody could be eating with — a loaf of bread, a gallon of milk.” Fowler says the program is in need of reform due to the abuse.

 

It doesn’t seem like management is trying to discourage the use of food stamps inside of the Starbucks. In fact, they are advertising it, as seen in the sign.

 

 

Corporate stores do not accept food stamps. However, because the store is run by the grocery chain it is offered as a “grocery item”. Such Starbucks outlets are located inside of  airports, malls, colleges, Target, Alberstons, Fred Meyer and other chain grocery stores.

 

The initial report from FOX12,

…

 

"There are a lot of loopholes," she said.

 

A spokesman with Safeway told FOX 12 the store recently made the change as an added convenience to customers.

 

"We think that compliance with state laws is something we can easily do," said Dan Floyd, of Safeway.

 

According to federal Supplemental Nutrition Assistance Program (SNAP) guidelines, people cannot buy foods that will be eaten in the store or hot foods. However, luxury items that are allowed include soft drinks, candy, cookies, ice cream, even bakery cakes and energy drinks that have a nutrition facts label.

 

While FOX 12 learned you cannot use an Oregon Trail Card at a corporate, stand-alone Starbucks location, the Starbucks inside Safeway is run by the store. Fowler tried to use her card at a stand-alone Starbucks, but was denied.

 

However, the register at the in-store location considers the purchase a "grocery item" and as long as it's cold, it's allowed, according to store employees.

 

"It shouldn't be allowed, whether it's a cold item or not," said Fowler. "It's a luxury item. If you really want one (Frappuccino), save your money and go buy one. Don't use the system.

 

A spokesman with the State Department of Human Services told FOX 12 he wasn't aware this practice was happening.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-ijJZBLmYJA/story01.htm Tyler Durden

Remember the main reason why the Fed should have tapered, namely the illiquidity in the bond market it is creating with its feverish pace of collateral extraction, and conversion of quality collateral into 500x fwd P/E dot com dot two stocks? Here to put it all in context is Scotiabank’s Guy Haselmann: “Through its QE policy, the Fed buys $3 of mortgages for every $1 of origination.  The consequence is that secondary mortgage market liquidity has been decimated: it is as bad as when Bear Stearns failed.” That’s just MBS for now. However, since the Fed has refused and refuses to taper, the same liquidity collapse is coming to Treasury’s first, then corporates, then ETFs, then REITs and everything else that the Fed will eventually monetize. Just like the BOJ.

As a post script, here are some other observations from Haselmann:

• Moral Hazard has run wild due to Fed policies. Risk appetite, complacency, and market speculation are at elevated levels.  Buyers are scrambling to find assets to buy. As a result, there has been a surge in debt issuance, especially of riskier securities like covenant-lite loans, leveraged loans, and payment-in-kind bonds. 
• The Fed does not have an inflation problem, simply because the $3 trillion+ it has created out of thin air has not been lent into the fractional reserve system.  In other words, the velocity of money has been falling.  The lack of visibility health care costs, the national fiscal budget, the tax code, regulatory rules and economic growth generally (to name a few), is so widespread that it is impossible to assess the financial logic behind potential capital investment projects. When this uncertainty fades, the velocity of money will rise and the Fed’s ability to control inflation with be challenged accordingly.
• IPO’s have also come at a fierce pace, taking advantage of investors scrambling to put easy money to work; and who may not be giving enough attention to valuations and the risks involved.  Market pundits seem to fuel investor complacency with daily statements that equity P/E’s are historically cheap. However, comparing today’s “new normal” growth trajectory to the high growth period of the 1990’s seems misguided.  Furthermore, the current environment is unprecedented and the “E” is a rapidly moving target.
• The P/E’s of the top 50 Russell 2000 stocks is over 45.  The P/E of Linkedin is 755, AOL’s is1278, Chipotle’s is 54.  After Twitter’s IPO tomorrow, the stock will trade near 42X revenues (because it has no “E”).  Now that is “cheap”- at least relative to where some stocks traded during the dot.com bubble.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qo79Lhj0-Ug/story01.htm Tyler Durden