Sunday, June 24, 2018

Dear High School Graduates: the Status Quo "Solutions" Enrich the Few at Your Expense

You deserve a realistic account of the economy you're joining.
Dear high school graduates: please glance at these charts before buying into the conventional life-course being promoted by the status quo.
Here's the summary: the status quo is pressuring you to accept its "solutions": borrow mega-bucks to attend college, then buy a decaying bungalow or hastily constructed stucco box for $800,000 in a "desirable" city, pay sky-high income and property taxes on your earnings, and when the stress of all these crushing financial burdens ruins your health, well, we've got meds to "help" you--lots of meds at insane price points paid for by insurance-- if you have "real" insurance without high deductibles, of course.
Here's the truth the status quo marketers don't dare acknowledge: every one of these conventional "solutions" only makes the problem worse. Student loan debt only makes your life harder, not easier, as the claimed "value" of a college degree is based on the distant past, not the present. The economy is changing fast and the conventional "solutions" no longer match the new realities. But don't expect anyone profiting from the predatory profiteering higher-education cartel to admit this.
The high cost of housing isn't "solved" by buying in at the top of an unprecedented bubble. Buying into bubbles only makes the problem worse, for all bubbles eventually pop.
The "solution" to crushing levels of debt is not to borrow more just to prop up a rotten, corrupt, dysfunctional and self-serving status quo. In effect, the young generations are being groomed to be the hosts for the parasitic classes that feed on young taxpayers, student loan debt-serfs, young buyers of bubble-priced housing, unaffordable sickcare "insurance" and all the rest of the status quo "solutions."
As writer Peter Turchin has explained, societies in decline overproduce elites.Those promised an elite slot who are left out become the engine of social unrest.
The status quo claims that getting a college diploma more or less guarantees you a slot in the elite class of folks with secure incomes and opportunities to get ahead and build real wealth.
The reality is only the top 5% of the work force are doing well. So of the 33% of the work force with university diplomas, the system only creates slots for the top 15% of that educational elite. The next 15% (the rest of the top 10% of the entire work force) can pick up the 2nd tier technocrat positions and everyone else gets the scraps: insecure jobs, mediocre pay, limited opportunities.
Before you accept that becoming a debt-serf to get a college diploma is a "solution," check out the other side of that trade: the mostly older, wealthier folks profiting from your debt-serfdom:
This parasitic predation is guaranteed by your federal government: you know, the institution everyone looks to for "solutions."
How did millions of students earn college diplomas before the hyper-financialization of the economy and before assistant deans made $350,000 a year in "competitive" salaries? It's a mystery lacking any mainstream explanation.
Speaking of debt--here's the nation's total debt level: note that the amount of debt required to push GDP higher keeps increasing far faster than GDP:
As for plunking down hundreds of thousands of dollars for that little cheaply constructed stucco/particle board/plastic box: housing prices in hot markets such as Dallas and Seattle have far exceeded the previous hyper-financialized housing bubble top in the mid-2000s:
Don't worry about soul-crushing commutes, homeless encampments or rapidly rising taxes: asset bubbles make everything bearable, until they pop.
You deserve a realistic account of the economy you're joining. Here's reality: the vast majority of the gains reaped since your birth have flowed to the very top of the hyper-financialized wealth-power pyramid.
As Bucky Fuller noted in his famous dictum, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete."
Rather than fight a system designed to stripmine you for life, seek a model for your life that obsoletes all the perverse conventional "solutions."
I'm putting four books on sale which may help provide an alternative context for your life-decisions.
Kindle edition now $6.95, print edition now $15.
Kindle edition now $2.99, print edition now $9.95.
Kindle edition now $2.99, print edition now $6.95.
SUMMER BOOK SALE through June 30, 2018 


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Laura D. ($50), for your superbly generous contribution to this site -- I am greatly honored by your steadfast support and readership.
 
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Friday, June 22, 2018

Are You Prepared to Invest in Troubled Times?

Market "fixes" fuel wealth/income inequality which feeds political and social instability.
There are two Grand Narratives about the U.S. economy and asset markets: the mainstream narrative is that nothing is fundamentally wrong with the economy, and so no structural changes (and the sacrifices such changes entail) are needed.
In this narrative, the only problem that needs solving is markets stop bubbling higher. The mainstream always expects markets to keep bubbling higher essentially forever, but reality intrudes and the asset bubbles pop.
The solution in this narrative is to "fix" markets with massive stimulus: fiscal stimulus from the Savior State and monetary stimulus from the central bank -- Federal Reserve (reinflating bubbles that enrich the already-wealthy is our primary job).
I've marked up a chart of the S&P 500 stock index to reflect this narrative:
Note that the mainstream never expects bubbles to deflate. The economy is always doing great at the bubble top, and expectations are always that assets will consequently continue bubbling higher.
Then there's a horrendously unexpected crash. The status quo panics, and the Federal Reserve and the Savior State rush to provide massive stimulus--tax cuts, tax rebates, more federal spending, lower interest rates, bond buying, easier lending standards, increased liquidity, and so on.
Asset prices respond to these constant injections of uppers very predictably:they leap higher as participants realize the "Fed put" is in place: the central bank will not let markets decline, so the profitable strategy is "buy the dip."
Note that the quantity of stimulus required to "fix" the markets increases exponentially every bubble-pop. Where a sharp decline in interest rates and conventional monetary stimulus stopped the 2002 crash in its tracks and reinflated asset bubbles, the next bubble-pop crash in 2008-09 required an unprecedented range of unconventional stimulus to stop the crash and reinflate the era's third asset bubble: zero interest rates (never done before), $4 trillion in bond and mortgage purchases (never done before), ending mark-to-market pricing of financial instruments (never done before) and unlimited liquidity to the banking sector and financial markets (never done before).
And so here we are again, at the top of a monumental parabolic blow-off top in stock markets and bubbles in other asset classes such as bonds and real estate.
And once again, the mainstream expects the bubble to keep rising. Doesn't it strike you as a bit insane to keep inflating unprecedented bubbles after the previous bubbles popped, and expect this new bubble to never pop?
The alternative Grand Narrative is the economy has changed and the problems are systemic: "fixing" the markets (i.e. using markets as signaling devices) doesn't address what's structurally broken; it simply increases the eventual pain when "fixes" fail the next time.
I hate to break this to you, but parabolic blow-off top bubbles burst, with catastrophic consequences for everyone who believed bubbles never pop and everyone who placed their capital in the hands of Wall Street and the conventional financial sector.
We are entering troubled times. The opportunity to address what was broken 10 years ago has been squandered by the status quo's reinflation of an even larger bubble as the "fix" to the bursting of the last bubble.
The question for individual investors is: are you prepared to invest in troubled times? Put another way: are you ready to entrust your wealth to Wall Street via passive investments in stock indices and funds that are betting that Netflix, which just doubled in a few months, will double again from $400 to $800 and then double again from $800 to $1,600 because the global demand for lousy movies is limitless and there's no real competition for streaming lousy movies?
Investing in troubled times boils down to one thing: control of your capital.Give the control of your capital to others, and you'll get what deflating bubbles deliver. Take control of your capital, and other possibilities emerge.
I wrote a book about taking control of one's capital, An Unconventional Guide to Investing in Troubled Times, and since we're entering troubled times, I've put the book on sale this month: $2.99 for the Kindle (digital) edition, and $9.95 for the print edition (a 50% discount).
And let's not forget the consequence of "fixing" markets rather than addressing fundamental imbalances: Market "fixes" fuel wealth/income inequality which feeds political and social instability.
SUMMER BOOK SALE through JUne 30, 2018:
Kindle edition now $2.99, print edition now $6.95.
Kindle edition now $2.99, print edition now $9.95. 


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Jason K. ($10/month), for your outrageously generous pledge to this site -- I am greatly honored by your steadfast support and readership.
 
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Wednesday, June 20, 2018

Gresham's Law and Bitcoin

Rather suddenly, the state issued fiat currency bolivar lost 99% of its purchasing power.
Gresham's law holds that "bad money drives out good money," meaning that given a choice of currencies (broadly speaking, "money" that serves as a store of value and a means of exchange), people use depreciating "bad" to buy goods and services and hoard "good" money that is appreciating or holding its value.
As this dynamic plays out, eventually there is little "good money" in circulation and the economy suffers accordingly.
Correspondent AK recently submitted an insightful discussion of Gresham's law and bitcoin:
1: Discussions surrounding Bitcoin and Gresham’s law immediately devolve into a debate about historical formulation or wording of Gresham’s law. Gresham’s law includes the notion that one or several currencies must be accepted at a defined value under legal tender law. However, the wider economic phenomenon that “powers” Gresham’s law is a universal phenomenon that is independent of any particular legal or cultural context.
To wit, in economic exchange where the seller will accept two different commodities as payment, the buyer will tend to pay with the commodity that in his own eyes is of inferior or lesser value. When this phenomenon is replicated in a large number of economic exchanges, and in reference to the same two commodities, this results in the “bad” currency driving from circulation the “good” currency, as buyers in the marketplace pay with the inferior or lesser-valued commodity (as viewed from their own point of view), when the seller will accept two different commodities as payment.
2: This phenomenon, which we could refer to as Gresham Effects, is independent of the legal framework operating at any given time. If you will accept as payment milk with an expiration date two days from now or milk with an expiration date ten days from now, I will tend to pay you with the milk with an expiration date two days from now. If many similar exchanges occur in the marketplace, this will result in the “bad milk” driving driving the “good milk” from circulation as market participants routinely offer only the milk expiring in two days in their exchanges.
3: Therefore, if in the marketplace sellers are willing to accept either Bitcoin or fiat currency as payment, the phenomenon Gresham Effects tells us that buyers will offer the commodity they view as inferior or of lesser value in these economic exchanges. If market participants generally view fiat currency units as inferior or as lesser in value than Bitcoin currency units, and if this value judgment is repeated in many economic exchanges, this can be expected to result in the “bad” money (fiat) driving the “good” money (Bitcoin) from circulation.
Since Bitcoin was not in wide circulation to begin with, Gresham Effects in this case has the effect of preventing or suppressing the wide-scale use of Bitcoin as an exchange currency. This situation can be expected to last for as long as sellers are willing to accept either fiat currency or Bitcoin as payment and buyers view Bitcoin currency units as superior or of greater value than fiat currency units. In short, due to Gresham Effects Bitcoin will not become a widely circulating medium of exchange while these conditions persist.
Interpretation: To me, this indicates or implies that Bitcoin’s use case is more as a ‘reserve currency/store of value’ and less as a currency for use in daily transactions. In general, I will not relinquish my Bitcoins in exchange for t-shirts or Snickers bars if the seller will accept either Bitcoin or fiat currency. I will prefer to pay for t-shirts and Snickers bars using fiat currency.
On the other hand, when I want to purchase something and I do not have enough fiat currency to pay for it, in this case I may use my “reserve” currency, Bitcoin. For example, if I want to purchase a house and I only have enough fiat currency for 20% of the price, in this case I may use my reserve currency to pay the other 80%. This example assumes that paying the full price by fiat currency is not an option. If I had enough fiat currency to pay the entire price I would pay by fiat currency.
The significance here is that those who are envisioning a future in which Bitcoin becomes a widely circulating medium of exchange may be envisioning something that is at odds with the laws of economics. Both economic law and empirical evidence seem to indicate that due to Bitcoin’s strictly limited supply, market participants may refrain from offering Bitcoin as payment in daily transactions. Bitcoin may have very important use cases, but its most most important use case may not be a widely circulating medium of exchange.
Thank you, AK. As anyone who follows cryptocurrencies knows, the objections to cryptocurrencies and bitcoin specifically are legion: it's not stable, it can't be trusted, it isn't "real money," etc.
I'd like to illustrate "real money" with a chart of the bolivar, the national currency of Venezuela. Note that until relatively recently the bolivar traded (at least at the official rate) at around 10 bolivars to one U.S. dollar (USD) and around 25 to the USD on the black market (i.e. free market). These exchange rates slowly moved higher, but few expected the bolivar to depreciate to an appalling free-market rate of 100 to one USD.
Rather suddenly, the state issued fiat currency bolivar lost the majority of its purchasing power. This loss of purchasing power, also known as inflation, gathered momentum and is now at hyper-inflationary rates: a few months ago it only took 237,000 bolivars to buy one USD, and now in June it takes 2,800,000 bolivars to buy one USD.
Not to put too fine a point on it, but the Venezuelan citizen who converted all the family's bolivars to bitcoin two years ago (June 2016) would have preserved the purchasing power of their "money." So while the Bank of International Settlements (BIS, which is owned by 60 central banks) is pleased to declare bitcoin untrustworthy and in effect, not "real money," unlike the stable, secure, trustworthy fiat currencies issued by central banks, it pays to reconsider Gresham's law before concluding bitcoin isn't "real money."
SUMMER BOOK SALE through JUne 30, 2018:
Kindle edition now $2.99, print edition now $6.95.
Kindle edition now $2.99, print edition now $9.95. 


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Al I. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
 
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Sunday, June 17, 2018

Onward to Stock Market Nirvana... Or Not

Rising wedges tend to lead to declines, so ignore them.
At long last, we have reached the Nirvana of consensus: the stock market is heading to new all-time highs. Even the perma-Bear camp seems to have accepted the inevitability of new all-time highs ahead: The FANG stocks are hitting new highs, the Russell 2000 Small-Cap Index is hitting new highs, and the laggard S&P 500 is sure to catch up to its peers, as it climbs the ladder of higher lows. Once again we've reached the Nirvana of ever-higher stock valuations.
Or not. That troublesome kid watching the naked Emperor ride past in his imaginary finery keeps muttering about rising wedges. Consider the Russell Small-Cap Index (RUT):
The Raging Bull of the FANG stocks, Netflix:
The S&P 500:
And the so-called "fear index," the VIX, reduced to the Nirvana of complacency and supreme confidence:
The Nirvana of January--super-low VIX and an ever-rising stock market-- was disrupted by an unwelcome eruption of reality.
The beaten down VIX traced out a couple of blue wedges before the eruption, but let's ignore them. What matters is order was restored to the Universe by the triumph of complacency and confidence as the VIX was ground down to sub-12 levels again.
Rising wedges tend to lead to declines, so ignore them. Never mind their ubiquity-- Nirvana blasts right through resistance and rising wedges.
The faithless few might be troubled by the similarities of late January to the present, but the faithful have supreme confidence in the Fed, the tremendous bite of the FANGs and the all-powerful forces of greed and complacency--a marriage made in heaven!
Here's a look at the real Nirvana: the income and wealth gains of the top .1%.
Debt-serfs "own" nothing but debt, the Technocrat class shouldering student loans and mortgages keeps the machine running by working themselves to exhaustion, and the speculative class skims virtually all the gains.
Stock market Nirvana feeds wealth/income inequality Nirvana.



My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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Wednesday, June 13, 2018

Here We Go Again: Our Double-Bubble Economy

The bubbles in assets are supported by the invisible bubble in greed, euphoria and credulity.
Well, folks, here we go again: we have a double-bubble economy in housing and stocks, and a third difficult-to-chart bubble in greed, euphoria and credulity.
Feast your eyes on Housing Bubble #2, a.k.a. the Echo Bubble:
Here's the S&P 500 stock index (SPX): no bubble here, we're told, just a typical 9-year long Bull Market that has soared from a low in 2009 of 666 to a recent high of 2802 in January of this year:
Here's a view of the same bubble in the Dow Jones Industrial Average (DJIA):
Is anyone actually dumb enough not to recognize these are bubbles? Of course not. Those proclaiming that "these bubbles are not bubbles" know full well they're bubbles, but their livelihoods depend on public denial of this reality.
And so we're inundated with justifications of bubble valuations, neatly bound with statistical mumbo-jumbo: forward earnings (better every day in every way!), P-E expansion, and all the rest of the usual blather that's spewed by status quo commentators and fund managers at the top of every bubble.
The problem with bubbles is they always pop. The market runs out of Greater Fools and/or creditworthy borrowers, and so sellers overwhelm the thinning ranks of buyers.
Those dancing euphorically, expecting the music will never stop, are caught off guard (despite their confidence that they are far too clever to be caught by surprise), and the panic-driven crowd clogs the narrow exit, leaving a ballroom of bag-holders to absorb the losses.
The other problem with bubbles is that we've become dependent on them as props holding up a rotten, corrupt status quo. Since the economy can no longer generate sufficient prosperity to go around via actual increases in productivity and efficiency, those skimming most of the gains rely on "the wealth effect" generated by expanding asset bubbles to create a dreamy illusion of prosperity.
Here's the third consequence of bubbles: the gains flow to the very top of the wealth-power pyramid: there is no other possible output of the bubble, since roughly 80% of all assets are owned by the top tier of households, and the majority of financial assets are owned by the top .1% (one-tenth of one percent).
Since only owners of assets reap gains from asset bubbles, only those who own assets benefit. That leaves out the bottom 90%, and if we're honest with ourselves (now verboten), the bottom 99.9%, despite the heady illusion at the apex of the bubble (i.e. the present housing and stock markets).
The bubbles in assets are supported by the invisible bubble in greed, euphoria and credulity. We believe what we believe will make us rich, what feeds our euphoric confidence that the bubble-music will never stop and our credulity that bubbles which we know will pop will not pop until we've safely cashed out.


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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