“U.S. financial firms have taken write downs and losses of $666.1 billion since the beginning of 2007,” according to Bloomberg. There you have it. The number of the bust. The financial end times rolled on yesterday. The latest twist is the decision of U.S. regulators to come to the aid Citigroup, the world’s largest financial services firm. The Feds stepped in to guarantee around U.S. $306 billion of Citi’s troubled assets. In exchange, Uncle Sam gets preferred shares with an 8% dividend.That news was enough to send the S&P 500 up 6.5% on the day. It continued last Friday’s rally, and set just the right tone for decent days here in Australia. Whether that actually happens is something we’ll get to in a minute.
What do you make of this latest triage of the broken financial system? It keeps things ticking over. But how do you fix a nation that has too much debt by adding more debt? The U.S. government, through its various agency paramedics, is injecting money and buying equity all over the economic shop. But it’s not cheap.
Bloomberg tallied up the various commitments, loans, and guarantees made on behalf of the U.S. taxpayer by various Federal agencies and non-elected officials. It was not a small number. It came to U.S. $7.76 trillion, a vaguely patriotic sum, echoing the year the Declaration of Independence was proclaimed in 1776.
You can read the Bloomberg article as an explication of dependence. Or better yet, a pledge of eternal subservience to the power of debt. The $7 trillion plus figure is nearly half of annual U.S. GDP. Just under half of it — $3.18 trillion — is money tapped by financial firms through various auction facilities. It goes to rebuild balance sheets, rather than building factories, bridges, or new sources of power.
The Federal Reserve is the biggest instrument of this ramp up in commitments. The Fed has pledged $4.74 trillion on behalf of Americans. That’s 61% of the total amount, and $24,000 for every man, woman, and child in America (born free, but now everywhere in debt). More on this in a moment.
Here in Australia, local shares should get a boost from rising commodity prices (provided no more margin loans get called on insiders and short sellers cover). Oil was up $4.50 to $54.43 for a 9% gain on the day. Gold shot up nearly $30 to $821.90 for almost a four percent gain. Copper was up 6%, nickel 7%, zinc 6.4%, and tin 11.3%. And what, pray tell, may have led to that move?
Chinese monthly refined copper imports were up 15% in October, an eight month high. But what China gives it may also take a way. Cochilco, China’s state-run copper outfit, cut is forecast for copper prices in 2009. Where does that leave us with the base metals and with base metal shares? We asked Diggers and Drillers editor Al Robinson.
“China’s resurgent demand for raw materials is already surprising the market,” he wrote to us via e-mail from 2 metres away. “It reverted to ‘net importer’ status in all base metals for October, according to the London Metal Exchange (LME). China already needs more resources than it can get its hands on.”
“It’s buying more rock than it’s selling, in other words. That’s great news for the Australian resource sector in 2009.
“But this story goes further,” he adds. “China isn’t experiencing some sort of meek comeback, following the Olympic slowdown. It actually imported enough copper in October to offset the rest of the LME’s inventory rise. The ‘rest of the world’ may not be setting commodity demand ablaze. But China is already starting to fill in the gaps created by Western recession — on its own.”
While China fills the gaps, you may also start to see some short covering from traders who went short the base metals. That short covering could lead to big one day moves in the shares (which are appallingly over-sold). But it may not quite mark the bottom in metals prices. That’s going to be a function of supply and demand (with supply tightening as projects are shelved and demand idling).
The other thing to look for is bargain hunting. Investors and fund managers who liquidated long positions in the resource sector earlier this year to raise cash may begin nibbling if they find the right share at the right price. Take China for example.
Recently the Australian reported that “Rio may sell stakes to china to reduce debt.” Rio’s Chairman Paul Skinner was in Melbourne to discuss, among other things, the possibility of Rio selling assets or an equity stake to China Inc. in order to help pay off some of Rio’s U.S. $9 billion in debt that matures in 2009. Maybe Rio should first ask the Fed before giving up equity to China. Bernanke can be pretty accommodating, we hear.
And now it is time to bring that U.S. $7.76 trillion back into the picture and put it in the context of Australian resource equities. The Citigroup bailout deal prompted a rally in stocks and a rise in U.S. bond yields on Monday. The yield on two-year U.S. notes rose as the government auctioned another U.S. $36 billion of them into the market.
It’s hard to believe the Citigroup deal unleashed a lot of pent up bullishness on U.S. financial stocks. It’s easier to believe that the ever-increasing supply of U.S. government bonds is prompting investors who’ve rushed into them to look around for other, more desirable assets. Chinese investors, for instance, might decide than an equity stake in Rio Tinto — with its portfolio of iron ore, coal, and other assets — is a better investment than more promises to pay by the U.S. government.
Perhaps we’ve been hasty, though, in calling the pricking of the bond bubble in the past. It could be that the U.S. dollar becomes the clear winner in the global currency wipe out currently taking place. The dollar could end up being the preferred liquid currency in which to ride out the global crisis, despite the inflationary nature of U.S. monetary and fiscal policy.
If that’s the case, then the U.S. Treasury market will continue to suck up the world’s supply of available savings and capital the way a bush fire sucks up oxygen. A fire sucking up all the oxygen in a system leads to a massive destruction of life. Hence the Greek word “holokaustos.”
According to the Merriam-Webster dictionary, a holocaust is a “sacrifice consumed by fire,” or, “a thorough destruction involving extensive loss of life especially through fire.” The holocaust of the Treasuries, then, is what we’re getting at. First crowd all the world’s capital into the U.S. bond market. Then burn it up.
Smart money generally goes where it’s treated best (for yield and capital appreciation). In times of fear, what’s safe is smart. And so now the world’s investors and savers have an interesting choice: is the U.S. bond market safer than cash? Is it smart to play it safe? Or are equities safer than bonds? Or are equity stakes in projects with tangible assets better bets still, even in a world with a shrinking economy?
Our guess is that the printing of the Treasuries (increasing in the supply of U.S. bonds to fund the mega bailout, fuelling the eventual inflationary fire) will gradually spook investors now and into 2009. The leading edge of bargain hunters may already be finding their way into over-sold resource stocks for refuge. And will they find it? Or will their courage end in more losses?
It wouldn’t be surprising to see big one-day gains in over-sold resource stocks in the coming months. But we reckon the real story is that investors are rethinking their long-term asset allocation and will execute a new strategy after reviewing their 2009 performance.
More cash, fewer shares. And of the money that remains in shares, it will probably be parked in long-term positions that are selling at cheap valuations, perhaps with a nice yield. Expectations will be lowered and time horizons-for equities anyway-will be lengthened. You’ll have to expect less and be willing to wait longer.
Not that being in the equity market during the most serious financial crisis since 1929 is a sure thing. We live in dangerous times. Not much is certain. But for investors, the actions taken by U.S. monetary officials are starting to lead to movements in global capital. This could signal the beginning of the bottom in commodity prices, and the beginning of bargain hunting in resource shares.
http://whiskeyandgunpowder.com/possible-holocaust-in-us-bonds/
Sunday, December 14, 2008
Does Obama Understand Oil Scarcity?
A lot of readers are twanging on me for refraining to castigate President-elect Obama for deeds yet undone. They’re discouraged by the advisors and cabinet secretaries he’s picked, ostensibly because the crew coming in are Washington “insiders,” meaning they can’t possibly see or do things differently.
My own starting point for this is the belief that in the years just ahead any sociopolitical entity organized at the giant scale will flounder — this includes everything from the federal government to global corporations to factory farms to centralized high schools to national retail chains. So even expecting Mr. Obama’s government to act effectively may be asking too much in a situation that will require mostly local action.
The meta-situation will be the overall decline of energy resources and the necessary downscaling of our activities. We are obviously in a transitional period between the old profligate energy economy and the new economy of relative scarcity. We have no idea how disorderly this transition will be, but there is certainly potential for tremendous instability in daily life.
For a while, perhaps, the federal government may retain some ability to affect the way things go, or give the appearance of doing so. This raises the issue of what Mr. Obama and his team really know about our energy predicament. The president-elect has made some noises — recently on the 60 Minutes show — that he understands something about the current price dislocations in the oil markets resulting from the larger financial turmoil. He alluded to the public’s erroneous notion that current low-ish oil prices mean the oil problem is over. But does the incoming president know some of the following details?
For instance, does Mr. O know that global oil production appears to have peaked at around 85 million barrels a day, with poor prospects of ever getting beyond that? This single naked fact has broad ramifications, above all whether we can continue to think in terms of industrial “growth” as the benchmark for economic health. There are many interpretations of the current financial fiasco. Some of them are based on long-term technical wave theories. A more down-to-earth view suggests the shock of peak oil — though it doesn’t exclude wave theories.
Does Mr. O know that world oil discovery has fallen to insignificant levels after peaking long ago in the 1960s. Does he know we are finding no more super-giant oil fields on the scale of Arabia’s Ghawar or Mexico’s Cantarell, which have supplied most of the world’s oil for the past forty years and are now running down? Does he know that you can’t produce oil that hasn’t been discovered? Does Mr. O know that virtually all the oil-producing nations have entered production decline. Surely someone has whispered in his ear about the IEA’s projection that global oil production would fall 9.1 percent in the coming year.
Does Mr. O know that oil exports have been trending to decline at a steeper rate than oil depletion? That is, the exporting nations are losing their ability to send oil to the importers (like us) at a rate mathematically greater than the run-down in their production. They are using more of their own oil even while their production is going down. For example, Mexico is depleting overall at more than 9 percent a year (with the Cantarell field alone running down at more than 15 percent annually). Does he know Mexico’s net exports are crashing? Mexico has been our number three leading source of imports. In a very few years they will not be able to send us any oil. A deluded American public has no idea that this is happening. Will Mr. O explain it to them?
Does Mr. O know that the “old major” oil companies (Exxon-Mobil, Texaco, Shell, et al) produce less than 10 percent of the world’s oil now — the other 90 percent coming from the foreign nationals — and that blaming them for the situation is a waste of time. The foreign national companies are changing the landscape of the oil markets. They’re making special contracts with “favored customers” rather than just putting their oil up for auction on the futures markets. One thing you can infer from this is that we’re entering a period of national oil hoarding based on coming scarcity. The futures markets were based on relative abundance, and they will not operate very well in a climate of scarcity. Consider that the USA will probably not be among the “favored customers” for several oil producing nations. Figure that in with the coming loss of imports from Mexico (and Venezuela and Nigeria).
Does Mr. O know that the current drop in oil prices (due to massive financial deleveraging) has resulted in the cancellation or postponement of the very oil production projects that were hoped to offset the coming depletions? It’s not worth it for an oil enterprise (private or foreign) to drill in deepwater or venture into arctic regions when oil is priced at $50-a-barrel — if it costs $80 to get the stuff out of the ground. It’s not worth digging up tar sands in Canada at that price. This halt in activity is going to boomerang back on the US in a year or so, with depletions ongoing everywhere and no new oil to take its place. Does Mr. O know that we’re just as likely to see shortages as a resuming rise in oil prices here in the US during his coming term?
Does Mr. O know that the current re-inflation program being run by the Treasury and the Federal Reserve is so egregious that it may lead to loss of the dollar’s legitimacy, to the renunciation of dollar holdings by other nations, to the down-rating of US Treasury debt instruments, and finally to an inability of the US to purchase foreign oil — which comprises two-thirds of all the oil we use every day?
Does Mr. O know that we are not going to run the US automobile and truck fleet on any combination of alt.fuels? Continuing it by other means is a fantasy that will only disappoint us. The motoring era is coming to an end. Heroic investments in highway infrastructure to create jobs will be a tragic waste of our dwindling capital. The pressure for Mr. O to make these misinvestments will be enormous, perhaps insurmountable. There are probably not a thousand people in the US who agree with what I am saying — meaning the consensus to keep the cars running at all costs overwhelms reality at the moment. Does Mr. O’s concept of “change” include the possibility that we may have to live very differently in this society?
Chances are, if Mr. O knows any of these things he might be crucified in the polls and the media by acknowledging them. The only “change” that America really wants to hear about is evicting George Bush from the White House. They’re sick of him and all the disturbance he has caused in their financial affairs. But beyond that, the American public is deathly afraid of the kind of changes we actually face — such as, the end of consumer culture, the gross loss of value in suburban real estate (which forms the bulk of the middle class’s private wealth), the prospect of food and fuel scarcities, the need to re-localize our lives, the need to physically shape up to stop the costly and unnecessary drain on our medical resources, to grow more of our own food, to work harder at things that actually matter, and to save whatever we can for a difficult future.
If Mr. O introduces any of these themes into the national discourse, the public and the media and the bloggers will all dump on him for failing to prop up the wild party that American life became in recent decades.
http://whiskeyandgunpowder.com/does-mr-o-know/
My own starting point for this is the belief that in the years just ahead any sociopolitical entity organized at the giant scale will flounder — this includes everything from the federal government to global corporations to factory farms to centralized high schools to national retail chains. So even expecting Mr. Obama’s government to act effectively may be asking too much in a situation that will require mostly local action.
The meta-situation will be the overall decline of energy resources and the necessary downscaling of our activities. We are obviously in a transitional period between the old profligate energy economy and the new economy of relative scarcity. We have no idea how disorderly this transition will be, but there is certainly potential for tremendous instability in daily life.
For a while, perhaps, the federal government may retain some ability to affect the way things go, or give the appearance of doing so. This raises the issue of what Mr. Obama and his team really know about our energy predicament. The president-elect has made some noises — recently on the 60 Minutes show — that he understands something about the current price dislocations in the oil markets resulting from the larger financial turmoil. He alluded to the public’s erroneous notion that current low-ish oil prices mean the oil problem is over. But does the incoming president know some of the following details?
For instance, does Mr. O know that global oil production appears to have peaked at around 85 million barrels a day, with poor prospects of ever getting beyond that? This single naked fact has broad ramifications, above all whether we can continue to think in terms of industrial “growth” as the benchmark for economic health. There are many interpretations of the current financial fiasco. Some of them are based on long-term technical wave theories. A more down-to-earth view suggests the shock of peak oil — though it doesn’t exclude wave theories.
Does Mr. O know that world oil discovery has fallen to insignificant levels after peaking long ago in the 1960s. Does he know we are finding no more super-giant oil fields on the scale of Arabia’s Ghawar or Mexico’s Cantarell, which have supplied most of the world’s oil for the past forty years and are now running down? Does he know that you can’t produce oil that hasn’t been discovered? Does Mr. O know that virtually all the oil-producing nations have entered production decline. Surely someone has whispered in his ear about the IEA’s projection that global oil production would fall 9.1 percent in the coming year.
Does Mr. O know that oil exports have been trending to decline at a steeper rate than oil depletion? That is, the exporting nations are losing their ability to send oil to the importers (like us) at a rate mathematically greater than the run-down in their production. They are using more of their own oil even while their production is going down. For example, Mexico is depleting overall at more than 9 percent a year (with the Cantarell field alone running down at more than 15 percent annually). Does he know Mexico’s net exports are crashing? Mexico has been our number three leading source of imports. In a very few years they will not be able to send us any oil. A deluded American public has no idea that this is happening. Will Mr. O explain it to them?
Does Mr. O know that the “old major” oil companies (Exxon-Mobil, Texaco, Shell, et al) produce less than 10 percent of the world’s oil now — the other 90 percent coming from the foreign nationals — and that blaming them for the situation is a waste of time. The foreign national companies are changing the landscape of the oil markets. They’re making special contracts with “favored customers” rather than just putting their oil up for auction on the futures markets. One thing you can infer from this is that we’re entering a period of national oil hoarding based on coming scarcity. The futures markets were based on relative abundance, and they will not operate very well in a climate of scarcity. Consider that the USA will probably not be among the “favored customers” for several oil producing nations. Figure that in with the coming loss of imports from Mexico (and Venezuela and Nigeria).
Does Mr. O know that the current drop in oil prices (due to massive financial deleveraging) has resulted in the cancellation or postponement of the very oil production projects that were hoped to offset the coming depletions? It’s not worth it for an oil enterprise (private or foreign) to drill in deepwater or venture into arctic regions when oil is priced at $50-a-barrel — if it costs $80 to get the stuff out of the ground. It’s not worth digging up tar sands in Canada at that price. This halt in activity is going to boomerang back on the US in a year or so, with depletions ongoing everywhere and no new oil to take its place. Does Mr. O know that we’re just as likely to see shortages as a resuming rise in oil prices here in the US during his coming term?
Does Mr. O know that the current re-inflation program being run by the Treasury and the Federal Reserve is so egregious that it may lead to loss of the dollar’s legitimacy, to the renunciation of dollar holdings by other nations, to the down-rating of US Treasury debt instruments, and finally to an inability of the US to purchase foreign oil — which comprises two-thirds of all the oil we use every day?
Does Mr. O know that we are not going to run the US automobile and truck fleet on any combination of alt.fuels? Continuing it by other means is a fantasy that will only disappoint us. The motoring era is coming to an end. Heroic investments in highway infrastructure to create jobs will be a tragic waste of our dwindling capital. The pressure for Mr. O to make these misinvestments will be enormous, perhaps insurmountable. There are probably not a thousand people in the US who agree with what I am saying — meaning the consensus to keep the cars running at all costs overwhelms reality at the moment. Does Mr. O’s concept of “change” include the possibility that we may have to live very differently in this society?
Chances are, if Mr. O knows any of these things he might be crucified in the polls and the media by acknowledging them. The only “change” that America really wants to hear about is evicting George Bush from the White House. They’re sick of him and all the disturbance he has caused in their financial affairs. But beyond that, the American public is deathly afraid of the kind of changes we actually face — such as, the end of consumer culture, the gross loss of value in suburban real estate (which forms the bulk of the middle class’s private wealth), the prospect of food and fuel scarcities, the need to re-localize our lives, the need to physically shape up to stop the costly and unnecessary drain on our medical resources, to grow more of our own food, to work harder at things that actually matter, and to save whatever we can for a difficult future.
If Mr. O introduces any of these themes into the national discourse, the public and the media and the bloggers will all dump on him for failing to prop up the wild party that American life became in recent decades.
http://whiskeyandgunpowder.com/does-mr-o-know/
Thank the Government for the Ghetto
One of the conditions of employment as managing editor for Whiskey & Gunpowder—aside from rabid adherence to Austrian School economics—was relocation to Baltimore. I really didn’t think much of it at the time. I’d spent nearly my entire life in one of the four boroughs of the City of New York (anyone who’s lived there can tell you that secession-longing Staten Island doesn’t count) and I was ready for a change of employment and venue. Writing for Agora in a smaller and more affordable mid-Atlantic city seemed the perfect prescription.A couple of trips to Baltimore during the interview process only served to convince me that life here would be much better. Agora’s “corporate campus” is comprised of a handful of beautiful buildings in the center of the Mount Vernon neighborhood, one of the best-preserved bits of historic urbanism in the U.S…and I’m an absolute sucker for historic urbanism. I’d be able to live in an architecturally lovely part of a cheaper city, just a couple minutes’ walk from work that I would truly enjoy. What could be better?
I even did the usual due diligence and wandered around a bit at night to get a truer sense of how safe the neighborhood really was. Thing is, a cursory walk-through cannot substitute for actually living in a place. For example, I’m sure even downtown Baghdad has its moments; you’d have to stick around a bit to see exactly why the property values are so low in places. I’ve since come to know just how unsettling this otherwise lovely neighborhood can be in the dead of night. I’d heard endless stories of how rough Baltimore was (“Haven’t you seen the wire?”) and I knew it looked bad on paper, but what I’d seen of historic Mount Vernon assuaged any doubts…until I actually moved in…
My last neighborhood in New York was historic as well—in fact, last year it became NYC’s newest designated historic district—but it felt safer by an order of magnitude. I would often venture out to the local 24-hour grocery stores or all-night food carts at 2 or 3 in the morning. There were many other times I couldn’t sleep in the hours past midnight and would walk the ten blocks to the 24-hour gym. I can’t remember once feeling the least bit afraid while doing so. New York has had the distinction of being the safest big city in America for a while, a phenomenon I’ll address in a bit. Baltimore’s not nearly as big…nor nearly as safe.Ironically Baltimore does resemble the fictional New York in the movie adaptation of the classic Richard Matheson novel I Am Legend. For those of you who didn’t catch that Will Smith vehicle, the plot in the movie is as follows: a treatment that was supposed to cure mankind of an age-old plague becomes a virus that transforms over 99% of humanity into violent, blood-sucking, mindless monsters.
I hope you see where I’m going with this.
http://whiskeyandgunpowder.com/thank-the-government-for-the-ghetto/
I even did the usual due diligence and wandered around a bit at night to get a truer sense of how safe the neighborhood really was. Thing is, a cursory walk-through cannot substitute for actually living in a place. For example, I’m sure even downtown Baghdad has its moments; you’d have to stick around a bit to see exactly why the property values are so low in places. I’ve since come to know just how unsettling this otherwise lovely neighborhood can be in the dead of night. I’d heard endless stories of how rough Baltimore was (“Haven’t you seen the wire?”) and I knew it looked bad on paper, but what I’d seen of historic Mount Vernon assuaged any doubts…until I actually moved in…
My last neighborhood in New York was historic as well—in fact, last year it became NYC’s newest designated historic district—but it felt safer by an order of magnitude. I would often venture out to the local 24-hour grocery stores or all-night food carts at 2 or 3 in the morning. There were many other times I couldn’t sleep in the hours past midnight and would walk the ten blocks to the 24-hour gym. I can’t remember once feeling the least bit afraid while doing so. New York has had the distinction of being the safest big city in America for a while, a phenomenon I’ll address in a bit. Baltimore’s not nearly as big…nor nearly as safe.Ironically Baltimore does resemble the fictional New York in the movie adaptation of the classic Richard Matheson novel I Am Legend. For those of you who didn’t catch that Will Smith vehicle, the plot in the movie is as follows: a treatment that was supposed to cure mankind of an age-old plague becomes a virus that transforms over 99% of humanity into violent, blood-sucking, mindless monsters.
I hope you see where I’m going with this.
http://whiskeyandgunpowder.com/thank-the-government-for-the-ghetto/
Public Schools and Social Security: Killing America, Part I
There are a lot of ways to kill something, either slowly or quickly. As for a living thing, you can shoot it, run over it, or use some other instant way of getting rid of it. There are slow ways, such as poison administered gradually, or perhaps destroying its ability to care for itself. If you took a domesticated animal, and put it out in the wild, it would starve or be eaten because it wouldn’t know how to hunt or protect itself. In the animal kingdom, the weak are eliminated because of not being able to protect themselves from predators, illness, or some other form of weakness. This is the natural method which nature uses to keep the animals strong and healthy. The old and weak are at times eaten by the young and strong. Mutants are sterile, so their kind won’t reproduce and pollute the animal kingdom.
Enough about animals; let’s examine how America has, and is being killed. In the main by two methods: (1) Currency destruction, and (2) Weakening the populace. The currency destruction is inseparably linked to the second method. Before FDR, people used to plan for their retirement, save in sound dollars, own a home, or in a hundred ways, plan for old age. Americans were strong, intelligent, hard working, and knew that if they didn’t plan for retirement and old age, they might die early. Did it work? Of course! Naturally, the weak and stupid didn’t plan for their old age, and guess what? They died early, which is as it should have been. Just like stupid animals, they couldn’t survive if they didn’t act and plan properly. An animal has to find a place to live, build a nest, store food, and the like. People had to pay their debts, pay off their home, save money, and PLAN. If they did, all was OK. If they didn’t, they died early. The human strain was kept strong by this method, just like in the animal kingdom.
What stopped this necessity to plan and save? Social Security, for one. Government would take care of the oldsters, and remove their duty and necessity to care and plan for themselves. Government would force a deduction from their paychecks, put it away for them, and then when they retired, all would be well. This, of course, weakened the populace. They no longer had to plan, save, sacrifice, and work hard for their old age. The weak no longer failed and died. They lived, and continued to live, when they should have, by all logical means, been dead and buried. By staying alive, they became and become a burden on the rest of the populace and families. Does this sound coarse, mean, crude, and ungodly? Maybe it does to you, but it is so logical. The Social Security scheme, like all other government “plans” and bureaucracies, have ruined the value of the dollar. Forced, compulsory, Social Security, like all other government entitlements, has become a disaster. There are far more retirees than workers, and the original 1% deduction, now is close to 20%, still not enough, thereby weakening all of us. As if that weren’t bad enough, government continues to lie about inflation, which it causes, so the welfare checks are far less than they should be; thereby screwing the supposedly well cared for recipients. No one can live on a Social Security check today, even though we have all been forced to pay through our noses to support it. The entire American citizenry has been made weaker, made unable to care for itself, and at the same time been stolen from in a wholesale manner. Government then, is killing its citizens and itself at the same time.
Originally, there were no public schools. Everyone taught their kids at home. Literally, or in a private or religious school. Caring, smart parents taught them well, and the kids succeeded. America, a hundred years ago was far more educated and cultured than now. By knowledge and skills of reading, math and other subjects, the eighth grader of a hundred years ago compares equally with today’s college student or maybe even graduate. This was without any public schools. The stupid parents who didn’t teach or show caring, demonstrated it in their kids who failed in life, probably died early, and didn’t become a burden on the rest of society. Next, there were thousands of one-room schoolhouses, paid for by the local populace, and these schools did very well, but it was the beginning of large public schools, which seem to be not much more than baby sitters. Home schooling has once again become the smart thing to do by caring parents, because they realize that government schools are a disaster, like every other government scheme and “program.” Public schools now consume three quarters of all property taxes, and do a lousy, expensive job. Catholic parents usually send their kids to parochial schools which are in no way “public” and not paid for by taxpayers. Wealthy parents may have sent, and still do, send their kids to private schools, not paid for by taxes, and they always did and still do a fine job.
Government schools had to fail, like all “programs” fail, because of inefficiency and cost. The failure and cost of public schools is partially responsible for populating the streets of America with thugs, criminals, druggies, shoplifters, burglars, rapists, and all sorts of riff-raff, which should be dead, and maybe not have been born in the first place, probably. Trash, uneducated, uncaring people seem to multiply at enormous rates and cause a lot of crime, don’t they? Cruel, ungodly, and coarse? Maybe, but picture America if there had never been a public school, and every child had been home-schooled or sent to a private school, paid for by its parents, with little or no property taxes, and no terrible, microscopic educating in failing public schools. There would be thousands and thousands of private schools operating for profit, and competing with each other for achievement, being used by parents who chose not to home-school. No teachers unions and inept teachers. There couldn’t be because competition in the market wouldn’t allow for it. There would be schools specializing in cooking, engineering, language, math, or whatever the parents chose for their kids. There would be an abundance of religious schools, paid for by churches and parents of pupils, but no drain on taxpayers of any kind, and superb education.
The public school systems, even in small towns like the one I live in, have proved to be expensive disasters. Homeowners are being taxed severely to pay for these incompetent, inefficient, poorly educating, sinkholes of fading dollars. So ingrained have public schools and Social Security become in the American mind, that most will disagree with my thesis. They will moan and groan about how, “We have to care for old people and educate the children,” even though facts and logic prove that the opposite has happened, and cost a fortune in dollars and crime. America has inflicted wounds on itself over the last hundred years, because the general public opinion is that, “People need to be helped and taught,” regardless of the cost or lack of success at either. Perhaps 1% of America will agree with me on this first part, because they are so mind-numbed by government propaganda, the media, and the garbage they themselves have learned in classrooms of public schools. Government and “programs” always come out ahead, and are painted as glorious and wonderful by the media, schools, and bureaucrats. They are the opposite, and are partly responsible for the killing of America. Once something gets started, regardless of the total illogic of it, such as public schools and Social Security, there is a zero chance of obliterating it, because so many have become dependent, and thereby weak. How can a nation survive if it is weak?
http://whiskeyandgunpowder.com/public-schools-and-social-security-killing-america-part-i/
Enough about animals; let’s examine how America has, and is being killed. In the main by two methods: (1) Currency destruction, and (2) Weakening the populace. The currency destruction is inseparably linked to the second method. Before FDR, people used to plan for their retirement, save in sound dollars, own a home, or in a hundred ways, plan for old age. Americans were strong, intelligent, hard working, and knew that if they didn’t plan for retirement and old age, they might die early. Did it work? Of course! Naturally, the weak and stupid didn’t plan for their old age, and guess what? They died early, which is as it should have been. Just like stupid animals, they couldn’t survive if they didn’t act and plan properly. An animal has to find a place to live, build a nest, store food, and the like. People had to pay their debts, pay off their home, save money, and PLAN. If they did, all was OK. If they didn’t, they died early. The human strain was kept strong by this method, just like in the animal kingdom.
What stopped this necessity to plan and save? Social Security, for one. Government would take care of the oldsters, and remove their duty and necessity to care and plan for themselves. Government would force a deduction from their paychecks, put it away for them, and then when they retired, all would be well. This, of course, weakened the populace. They no longer had to plan, save, sacrifice, and work hard for their old age. The weak no longer failed and died. They lived, and continued to live, when they should have, by all logical means, been dead and buried. By staying alive, they became and become a burden on the rest of the populace and families. Does this sound coarse, mean, crude, and ungodly? Maybe it does to you, but it is so logical. The Social Security scheme, like all other government “plans” and bureaucracies, have ruined the value of the dollar. Forced, compulsory, Social Security, like all other government entitlements, has become a disaster. There are far more retirees than workers, and the original 1% deduction, now is close to 20%, still not enough, thereby weakening all of us. As if that weren’t bad enough, government continues to lie about inflation, which it causes, so the welfare checks are far less than they should be; thereby screwing the supposedly well cared for recipients. No one can live on a Social Security check today, even though we have all been forced to pay through our noses to support it. The entire American citizenry has been made weaker, made unable to care for itself, and at the same time been stolen from in a wholesale manner. Government then, is killing its citizens and itself at the same time.
Originally, there were no public schools. Everyone taught their kids at home. Literally, or in a private or religious school. Caring, smart parents taught them well, and the kids succeeded. America, a hundred years ago was far more educated and cultured than now. By knowledge and skills of reading, math and other subjects, the eighth grader of a hundred years ago compares equally with today’s college student or maybe even graduate. This was without any public schools. The stupid parents who didn’t teach or show caring, demonstrated it in their kids who failed in life, probably died early, and didn’t become a burden on the rest of society. Next, there were thousands of one-room schoolhouses, paid for by the local populace, and these schools did very well, but it was the beginning of large public schools, which seem to be not much more than baby sitters. Home schooling has once again become the smart thing to do by caring parents, because they realize that government schools are a disaster, like every other government scheme and “program.” Public schools now consume three quarters of all property taxes, and do a lousy, expensive job. Catholic parents usually send their kids to parochial schools which are in no way “public” and not paid for by taxpayers. Wealthy parents may have sent, and still do, send their kids to private schools, not paid for by taxes, and they always did and still do a fine job.
Government schools had to fail, like all “programs” fail, because of inefficiency and cost. The failure and cost of public schools is partially responsible for populating the streets of America with thugs, criminals, druggies, shoplifters, burglars, rapists, and all sorts of riff-raff, which should be dead, and maybe not have been born in the first place, probably. Trash, uneducated, uncaring people seem to multiply at enormous rates and cause a lot of crime, don’t they? Cruel, ungodly, and coarse? Maybe, but picture America if there had never been a public school, and every child had been home-schooled or sent to a private school, paid for by its parents, with little or no property taxes, and no terrible, microscopic educating in failing public schools. There would be thousands and thousands of private schools operating for profit, and competing with each other for achievement, being used by parents who chose not to home-school. No teachers unions and inept teachers. There couldn’t be because competition in the market wouldn’t allow for it. There would be schools specializing in cooking, engineering, language, math, or whatever the parents chose for their kids. There would be an abundance of religious schools, paid for by churches and parents of pupils, but no drain on taxpayers of any kind, and superb education.
The public school systems, even in small towns like the one I live in, have proved to be expensive disasters. Homeowners are being taxed severely to pay for these incompetent, inefficient, poorly educating, sinkholes of fading dollars. So ingrained have public schools and Social Security become in the American mind, that most will disagree with my thesis. They will moan and groan about how, “We have to care for old people and educate the children,” even though facts and logic prove that the opposite has happened, and cost a fortune in dollars and crime. America has inflicted wounds on itself over the last hundred years, because the general public opinion is that, “People need to be helped and taught,” regardless of the cost or lack of success at either. Perhaps 1% of America will agree with me on this first part, because they are so mind-numbed by government propaganda, the media, and the garbage they themselves have learned in classrooms of public schools. Government and “programs” always come out ahead, and are painted as glorious and wonderful by the media, schools, and bureaucrats. They are the opposite, and are partly responsible for the killing of America. Once something gets started, regardless of the total illogic of it, such as public schools and Social Security, there is a zero chance of obliterating it, because so many have become dependent, and thereby weak. How can a nation survive if it is weak?
http://whiskeyandgunpowder.com/public-schools-and-social-security-killing-america-part-i/
The Fed’s War on Cash
Markets are dithering their way to the end of the year. It doesn’t look like much is happening. But some interesting things are going on. Pressure is building. For example, the dividend yield on the S&P 500 is 3.48%. The yield on a 30-year U.S. bond is 3.16%.
According to Mark Hulbert at CBS Marketwatch, 1958 was the last time the yield on the S&P 500 exceeded the yield on the 30-year bond. 1958? Are you kidding? Elvis joined the U.S. Army in 1958. Eisenhower was in the White House, Khrushchev in the Kremlin, and Menzies was elected for the fifth time in Australia.
The world may have lived on the edge of nuclear holocaust in 1958, but at least some things were more certain. You were better dead than Red. What was good for GM was good for America. And everyone liked Ike.
The world is much more confusing today. The yield on S&P stocks was 2% this time last year, a 74% increase in the last twelve months. We reckon stocks will start to look even more appealing when the yield reaches 5% or 6%, which would also mean lower stock prices first.
But there’s a bigger story going on, too. It’s what we call the Fed’s war on cash. You see, the Fed is driving down yields on government bonds and notes of all maturities quite deliberately. More on what it’s up to below. But it’s not just the Fed that’s pulling out all the monetary stops to float the world on a sea of credit.
It’s a now a race to the bottom for central bank interest rates. New Zealand’s central bank cut its main interest rates by a whopping 1.5% overnight. But the Kiwis have some work to do. Short-term rates across the Tasman are still at 5%, 450 basis points above Ben Bernanke’s Fed.
You don’t normally see such aggressive rate cutting in an economy until unemployment levels are much higher. It’s the classic Keynesian trade-off between inflation and unemployment. You can keep prices stable by keeping the rate growth low and savings high.
But slow, steady, prudent growth doesn’t create jobs fast enough for politicians. So rates are lowered! This leads to lower unemployment rates, but higher inflation. The big change in the last thirty years is that higher inflation was tolerable for most workers in the Western world because it seemed to come with some juicy benefits.
The first was asset price inflation. Houses and stocks went up too! Real wage growth was flat (or even fell). But the value of things you bought went up! On paper, everyone got wealthier.
Then, when China came along and started churning out geegaws and widgets faster than you could slap down a credit card, the apparent virtues of a little bit of inflation seemed limitless. Stocks and house prices went up, but consumer goods, durables, and electronics got cheaper.
This so-called “Great Moderation” suckered people into a dangerous financial strategy: asset-based saving and debt accumulation. And why not?
In a way, it’s perfectly rational. If credit is cheap and asset prices are rising, why not borrow to buy stocks and houses? The debt service is low, employment was pretty easy to find, and capital appreciation in your assets would smooth out any rough edges to the strategy.
Well, now that strategy is coming unhinged. In fact, the larger implication is so scary that only people like Robert Shiller dare to mention it: asset price appreciation is not a retirement strategy. It was a good run, from 1982 to 2000. But the idea that the stock market is society’s way of managing the risk of old age is now showing its own age. Investors are skittish.
“Fortress Investment Group LLC fell 25 percent to a record low,” reports Bloomberg, “after the private-equity and hedge-fund manager halted redemptions from its Drawbridge Global Macro fund, which had lost value this year.” Investors are seeking redemptions of over $3.5 billion from Fortress.
The run on the hedge funds is only restrained by the lock-up periods most investors agree to when turning their money over to a fund manager. But time takes care of that. Investors will continue asking for their cash back if they believe the market is either too risky or too mediocre.
This move to cash must distress the Fed and other central banks. It wants banks to lend, businesses to spend, and consumers to borrow. But the exact opposite is happening. So now we see the Fed doing its best to punish those in cash and force them to spend, or at least get out of government bonds and buy stocks.
Banks are content for now to build up a war chest of excess reserves. In fact, there’s been a surge in excess reserves held at the Fed by banks, and not just since the crisis began last October (the same is true of cash held at the RBA by authorised deposit taking institutions, see column K).
In other words, banks are happy to borrow from the Fed, but sad to lend to anyone. So what do they do? They deposit their new borrowings right back with the Fed, where they earn 1.5% interest (in excess of the target Fed Funds rate).
According to Fed data, U.S. financial institutions had just $60 billion in excess reserves held at the Fed at the end of September. On October 5th, the TARPenstein was passed. By the end of October, excess reserves held at the Fed had grown to $267 billion. By the end of November, it was $610 billion. Don’t fight the Fed! Flee to it!
According to Mark Hulbert at CBS Marketwatch, 1958 was the last time the yield on the S&P 500 exceeded the yield on the 30-year bond. 1958? Are you kidding? Elvis joined the U.S. Army in 1958. Eisenhower was in the White House, Khrushchev in the Kremlin, and Menzies was elected for the fifth time in Australia.
The world may have lived on the edge of nuclear holocaust in 1958, but at least some things were more certain. You were better dead than Red. What was good for GM was good for America. And everyone liked Ike.
The world is much more confusing today. The yield on S&P stocks was 2% this time last year, a 74% increase in the last twelve months. We reckon stocks will start to look even more appealing when the yield reaches 5% or 6%, which would also mean lower stock prices first.
But there’s a bigger story going on, too. It’s what we call the Fed’s war on cash. You see, the Fed is driving down yields on government bonds and notes of all maturities quite deliberately. More on what it’s up to below. But it’s not just the Fed that’s pulling out all the monetary stops to float the world on a sea of credit.
It’s a now a race to the bottom for central bank interest rates. New Zealand’s central bank cut its main interest rates by a whopping 1.5% overnight. But the Kiwis have some work to do. Short-term rates across the Tasman are still at 5%, 450 basis points above Ben Bernanke’s Fed.
You don’t normally see such aggressive rate cutting in an economy until unemployment levels are much higher. It’s the classic Keynesian trade-off between inflation and unemployment. You can keep prices stable by keeping the rate growth low and savings high.
But slow, steady, prudent growth doesn’t create jobs fast enough for politicians. So rates are lowered! This leads to lower unemployment rates, but higher inflation. The big change in the last thirty years is that higher inflation was tolerable for most workers in the Western world because it seemed to come with some juicy benefits.
The first was asset price inflation. Houses and stocks went up too! Real wage growth was flat (or even fell). But the value of things you bought went up! On paper, everyone got wealthier.
Then, when China came along and started churning out geegaws and widgets faster than you could slap down a credit card, the apparent virtues of a little bit of inflation seemed limitless. Stocks and house prices went up, but consumer goods, durables, and electronics got cheaper.
This so-called “Great Moderation” suckered people into a dangerous financial strategy: asset-based saving and debt accumulation. And why not?
In a way, it’s perfectly rational. If credit is cheap and asset prices are rising, why not borrow to buy stocks and houses? The debt service is low, employment was pretty easy to find, and capital appreciation in your assets would smooth out any rough edges to the strategy.
Well, now that strategy is coming unhinged. In fact, the larger implication is so scary that only people like Robert Shiller dare to mention it: asset price appreciation is not a retirement strategy. It was a good run, from 1982 to 2000. But the idea that the stock market is society’s way of managing the risk of old age is now showing its own age. Investors are skittish.
“Fortress Investment Group LLC fell 25 percent to a record low,” reports Bloomberg, “after the private-equity and hedge-fund manager halted redemptions from its Drawbridge Global Macro fund, which had lost value this year.” Investors are seeking redemptions of over $3.5 billion from Fortress.
The run on the hedge funds is only restrained by the lock-up periods most investors agree to when turning their money over to a fund manager. But time takes care of that. Investors will continue asking for their cash back if they believe the market is either too risky or too mediocre.
This move to cash must distress the Fed and other central banks. It wants banks to lend, businesses to spend, and consumers to borrow. But the exact opposite is happening. So now we see the Fed doing its best to punish those in cash and force them to spend, or at least get out of government bonds and buy stocks.
Banks are content for now to build up a war chest of excess reserves. In fact, there’s been a surge in excess reserves held at the Fed by banks, and not just since the crisis began last October (the same is true of cash held at the RBA by authorised deposit taking institutions, see column K).
In other words, banks are happy to borrow from the Fed, but sad to lend to anyone. So what do they do? They deposit their new borrowings right back with the Fed, where they earn 1.5% interest (in excess of the target Fed Funds rate).
According to Fed data, U.S. financial institutions had just $60 billion in excess reserves held at the Fed at the end of September. On October 5th, the TARPenstein was passed. By the end of October, excess reserves held at the Fed had grown to $267 billion. By the end of November, it was $610 billion. Don’t fight the Fed! Flee to it!
Government Tries to Outrun Recession… Again
I have a good friend named Bill who lives on the convergence of two tidal streams in an area aptly named: Twin Rivers. Last year his bulkhead was destroyed in a severe storm. The problem with repairing a bulkhead is that it is underwater, and that presents peculiar challenges. The easiest way to repair it is when the tide goes a long way out. That only happens when we get a strong northwest wind for a few consecutive days. Thankfully, we just got one of those spells recently. Of course, a NW wind in this part of the world, at this time of year, makes for a bitterly cold day working on the water. Nevertheless, it is only during a great receding that repair can be done.
The recent jobs report is letting us know that the “Great Receding” is continuing. The winds of change are a-blowin’. The question remains, however, “What kind of ‘repairs’ will be made, and how will the market respond?”
We are now approaching 2 million jobs lost in the US. The most in over 25 years. The number came in at -533K, meaning 25% of all jobs lost were in the last month alone. An interesting thing about receding tides and receding economies - as long as the winds keep blowing - they keep receding. But even after the winds stop, things don’t return to normal right away.
It appears now that we are in for yet a deeper and longer recession than previously thought. Each week that passes, more and more people say that exact phrase. But let’s stop for a minute and review what we have at hand.
-A negative GDP
-A 50% cut in the Equity Market
-A new weekly high in the dollar
-2nd Highest Monthly Job loss in History
-Moving toward Highest Annual Job Loss in History
http://whiskeyandgunpowder.com/government-tries-to-outrun-recessionagain/
The recent jobs report is letting us know that the “Great Receding” is continuing. The winds of change are a-blowin’. The question remains, however, “What kind of ‘repairs’ will be made, and how will the market respond?”
We are now approaching 2 million jobs lost in the US. The most in over 25 years. The number came in at -533K, meaning 25% of all jobs lost were in the last month alone. An interesting thing about receding tides and receding economies - as long as the winds keep blowing - they keep receding. But even after the winds stop, things don’t return to normal right away.
It appears now that we are in for yet a deeper and longer recession than previously thought. Each week that passes, more and more people say that exact phrase. But let’s stop for a minute and review what we have at hand.
-A negative GDP
-A 50% cut in the Equity Market
-A new weekly high in the dollar
-2nd Highest Monthly Job loss in History
-Moving toward Highest Annual Job Loss in History
http://whiskeyandgunpowder.com/government-tries-to-outrun-recessionagain/
Change We’ll Get: Oil, Money and Strife
In the twilight of the Bush days, in the twilight of the twilight season, a consensus has formed that we are headed into a long, dark passage leading we know not where. Even CNBC's Lawrence Kudlow has been reduced to searching for stray "mustard seeds" of hope on hands and ...
http://whiskeyandgunpowder.com/change-well-get-oil-money-and-strife/
http://whiskeyandgunpowder.com/change-well-get-oil-money-and-strife/
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