One of the greatest and most important political speeches in American history.
(Tanay Warerkar) Yesterday, we reported that with in parallel with Andrew Cuomo’s decision to once again shut down indoor dining in New York starting Monday, more than half of the city’s restaurants are in danger of closing. Yet as Eater New York reports, many in the New York hospitality industry were dismayed by Cuomo’s decision as it followed close on the heels of new state data which showed that restaurants and bars in the state accounted for just 1.4% of cases over the last three months. While most were prepared for the ban to be announced this week, many felt the decision seemed to contradict the data.
If you are making less than $3,000 a month, you have plenty of company, because about half of the country is in the exact same boat. The Social Security Administration just released new wage statistics for 2019, and they are pretty startling. To me, the most alarming thing in the entire report is the fact that the median yearly wage was just $34,248.45 last year. In other words, half of all American workers made less than $34,248.45 in 2019, and half of all American workers made more than $34,248.45. That isn’t a whole lot of money. In fact, when you divide $34,248.45 by 12 you get just $2,854.05.
(Stewart Jones) As the Federal Reserve’s quantitative easing practices generate the biggest debt bubble in history, gold futures are trading at record highs, a phenomenon some have called “a bit of a mystery.” However, this “mystery” was solved long ago by the laws of economics. The only “mystery” here is why—contrary to centuries of economic wisdom—we allowed centralized paper money to become the dominant form of currency in the first place.
As recent waves of civil unrest and economic turmoil have prompted some to look back in time and reflect on the observations of the Founding Fathers, it seems most have opted to reject them entirely. Yet among the founders’ many warnings against the institutions that would eventually dominate the modern world are the timeless—and astonishingly accurate—warnings against central banking.
On August 1, 1787, George Washington wrote in a letter to Thomas Jefferson that “paper currency [can] ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.” Jefferson also opposed the concept, warning that “banking establishments are more dangerous than standing armies.” James Madison called paper money “unjust,” recognizing that it allowed the government to confiscate and redistribute property through inflation: “It affects the rights of property as much as taking away equal value in land.”
In other words, inflation is a hidden form of taxation. Washington understood this. Jefferson understood this. Madison understood this. And generations of preeminent economists since then—from Ludwig von Mises to F.A. Hayek, to Murray Rothbard—have understood this quite clearly.
And there’s nothing controversial or mysterious about sound money, that is, currency backed by some form of secure, fixed weight commodity like gold or silver. Both have been valued in some fashion for six thousand years and have been used as currency for around twenty-six hundred years. As confidence in the dollar continues to nosedive, the market is not only putting more confidence in gold and silver, but in some crypto currencies sharing many of the characteristics of gold.
The presidencies of Woodrow Wilson and Franklin D. Roosevelt are rightfully regarded as some of the darkest years for freedom in America. Often overlooked, however, are the deeply repressive monetary policies introduced by both presidents. In 1838, Senator John C. Calhoun foreshadowed the economic evils that would eventually emerge at the peak of the Progressive Era, explaining,
“It is the nature of stimulus…to excite first, and then depress afterwards….Nothing is more stimulating than an expanding and depreciating currency. It creates a delusive appearance of prosperity, which puts everything in motion. Everyone feels as if he was growing richer as prices rise.”
Seventy-five years later, the autocrats running the Wilson administration dealt two devastating blows to liberty with the Federal Reserve Act and the Revenue Act, forever marking 1913 as a tragic year for liberty. Both laws struck at the heart of property rights by establishing the Federal Reserve System and the income tax, respectively. Then, in 1933, Roosevelt issued Executive Order No. 6102, requiring Americans to surrender much of their gold to the US government. Shortly after, Congress passed the Gold Reserve Act of 1934, artificially raising the price of gold and guaranteeing the government a profit of $14.33 for each ounce of gold it had seized from the people.
Finally, in 1971, President Richard Nixon—like any self-respecting twentieth-century Keynesian—committed himself to finishing the work of Wilson and Roosevelt by closing the gold window, forever divorcing the gold standard from the dollar. Rather than usher in a new era of economic stability, this unnatural union between the Fed and the federal government produced a vicious loop of boom-bust cycles and depressions. The consequences have not only been inflation and devaluation (both of which have stripped the people of their purchasing power and savings); now, every time a depression hits, the government is allowed to do two things: grow its power and tax and spend at will without fear of accountability.
In other words, with every inflation of currency comes an inflation of government power.
With government shutdowns of local economies, the second economic quarter of this year was among the worst in history, with the total debt-to-GDP reaching a staggering 136 percent. As the national debt approaches $27 trillion (with even bigger spending bills in the works), we can expect the days of such flagrant government spending to come to a screeching halt. If we continue on this path, that correction will result in an unprecedented collapse of the dollar and the monetary system. The ultimate danger in this scenario: the government eventually confiscates the vast majority or even all private property in order to pay off the national debt. As German American economist Hans Sennholz once said, “Government debt is a government claim against personal income and private property—an unpaid tax bill.”
This is why a dramatic downsizing of government is key to bringing the US out of this manic, outmoded cycle of depressions and upswings. For the government to fulfill its core function as a safeguard of liberty, we must prevent it from meddling in affairs beyond the boundaries prescribed by the Founding Fathers. This includes a swift withdrawal from the use of paper fiat currency and spending cuts across the board.
Such a sweeping transformation could begin with the state governments, the legislatures of which could override the federal government by passing legislation allowing individuals to use gold and silver currency.
Regardless, if meaningful legislative action is not taken somewhere, we have little choice other than to acquiesce to the gloom and terror of socialism—a system that would devour all in its path and make slaves of once free people for generations to come. Freedom is the natural ability of people to control their own destiny. Sound money has the ability to help keep people free.
Even before the coronavirus pandemic, US malls were in a crisis, with vacancies in January hitting a record high.
However, in the post-corona world, commercial real estate has emerged as one of the most adversely impacted sectors (perhaps because the Fed has so far refused to bail it out), with the number of new delinquencies soaring to a record high in recent weeks.
The gloom facing malls has also helped push the Big Short trade, which was the CMBX Series 6 BBB- tranche (the one with the most exposure to malls), to a fresh all time low last week.
And now, the implosion of the US retail sector has reached the very top, because according to Bloomberg The Mall of America, the largest US shopping center, has missed two months of payments for a $1.4 billion commercial mortgage-backed security, in confirmation that no business is immune to the devastating consequences of the coronavirus.
“The loan is currently due for the April and May payments,” according to a report filed by the trustee of the debt, Wells Fargo & Co., which is also the master servicer for the loan. “Borrower has notified master servicer of Covid-19 related hardships.”
Mall owners reported rock-bottom April rent collections, including about 12% for Tanger Factory Outlet Centers Inc., roughly 20% for Brookfield Property Partners LP and 26% for Macerich. Retailers and their landlords, hurt by competition from online stores before coronavirus-spurred shutdowns made things worse, are struggling to make rent and mortgage payments.
The 5.6 million-square-foot (520,000-square-meter) mall was ordered closed on March 17, and has announced plans to begin reopening on June 1, starting with retailers, followed later by food services and attractions, such as the mega-mall’s aquarium, cinema, miniature golf course and indoor theme park.
“Reopening a building the size of Mall of America is no small task, but we are confident taking the necessary time to reopen will help us create the safest environment possible,” the mall said in a statement on its website.
The Mall of America is owned by members of the Ghermezian family, whose holdings also include the West Edmonton Mall, a 5.3 million-square-foot complex in their Canadian hometown, and American Dream, a 3 million-square-foot mall in East Rutherford, New Jersey.
Once the government’s ability to sustain its enforcement with money created out of thin air vanishes, the entire order vanishes along with it.
The era of waste, greed, fraud and living on borrowed money is dying, and those who’ve known no other way of living are mourning its passing. Its passing was inevitable, for any society that squanders its resources is unsustainable. Any society that makes private greed the primary motivator and priority is unsustainable. Any society that rewards fraud above all else is unsustainable. Any society which lives on money borrowed from the future and other forms of phantom capital is unsustainable.
We know this in our bones, but we fear the future because we know no other arrangement other than the unsustainable present. And so we hear the faint echo of the cries of alarm filling the streets of ancient Rome when the Bread and Circuses stopped: what do we do now?
When the free bread and entertainments disappeared, people found new arrangements. They left Rome.
The greatest private fortunes in history vanished as Rome unraveled. All the land, the palaces, the gold and all the other treasures were no protection against the collapse of the system that institutionalized corruption as the ultimate protector of concentrated wealth.
The most zealously guarded power of government is the creation of money, for without money the government cannot pay the soldiers, police, courts and administrators needed to enforce its rule. Western Rome created money by controlling silver mines; in the current era, governments create money (currency) out of thin air.
Once the government’s money loses purchasing power, the system collapses. And so in the final stages of Rome’s decline, Imperial orders still flowed to distant legions, but the legions no longer existed; they were only phantom entries on Imperial ledgers.
Our “money” is also nothing but phantom entries on digital ledgers, and so its complete loss of purchasing power is inevitable.
Without “money,” the government can no longer enforce the will of its self-serving elites: orders will still flow in a furious flood to every corner of the land, but the legions to enforce the institutional corruption will be nothing but phantom entries on Imperial ledgers.
Once the government’s ability to sustain its enforcement with money created out of thin air vanishes, the entire order vanishes along with it. The destruction of the value of central bank-created “money” is already ordained, for there is no limit on human greed and the desire to maintain control, and so governments will create their “money” in ever-increasing amounts until the value has been completely leached from the phantom digital entries.
The outlines of a better world are emerging, an arrangement that prioritizes something more than maximizing private gain and institutionalizing the corruption needed to protect those gains. We will relearn to live within our means, and relearn how to institutionalize opportunity rather than corruption designed to protect elites.
We will come to a new understanding of the teleology of centralized power, that centralized power only knows how to extend its power and so the only possible outcome is collapse.
We will come to understand technology need not serve only monopolies, cartels and the state, that it could serve a sustainable, decentralized economy that does more with less, i.e. a DeGrowth economy.
The Federal Reserve will fail, just as the Roman gods failed to sustain the corrupt and bankrupt Roman elites. A host of decentralized, transparently priced non-state currencies will compete on the open market, just like goods, services and commodities. The Fed’s essential role– serving the few at the expense of the many, under the cover of creating currency out of thin air–will be repudiated by the implosion of the economy as all the Fed’s phantom “wealth” evaporates.
The outlines of a better world are emerging. Do you discern them through the smoke as the last frantic phantoms of an unsustainable system issue orders to reverse the tides of history as they dissipate into thin air?
Given the fact that over 30 million Americans have filed for initial jobless claims in the last six weeks, it is perhaps no surprise that economists expected a 20.5 million ADP job loss in April. In fact, silver lining, the number ‘beat’ with 20.236 million.
For context, the largest monthly job loss during the great financial crisis was just 834,700!
Large- and mid-sized companies saw the biggest job-losses…
And the service sector saw the biggest job losses…
If you’re an educator or in “management”, it would appear times remain good…
“Job losses of this scale are unprecedented. The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession,” said Ahu Yildirmaz, co-head of the ADP Research Institute.
“Additionally, it is important to note that the report is based on the total number of payroll records for employees who were active on a company’s payroll through the 12th of the month. This is the same time period the Bureau of Labor and Statistics uses for their survey.”
And as we noted previously, far more Americans have lost their jobs in the last month than jobs gained during the last decade since the end of the Great Recession… (22.13 million gained in a decade, 30.3 million lost in 6 weeks)
Worse still, the final numbers will likely be worsened due to the bailout itself: as a reminder, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, could contribute to new records being reached in coming weeks as it increases eligibility for jobless claims to self-employed and gig workers, extends the maximum number of weeks that one can receive benefits, and provides an additional $600 per week until July 31. A recent WSJ article noted that this has created incentives for some businesses to temporarily furlough their employees, knowing that they will be covered financially as the economy is shutdown. Meanwhile, those making below $50k will generally be made whole and possibly be better off on unemployment benefits.
As Mises’ Robert Aro noted earlier in the week, the stimulus packages being handed out across this world provide us with an opportunity to document the anti-capitalist process as it unfolds in real time, keeping in mind that when these inflation schemes fail, it will likely be blamed on capitalism.
The combination of increasing the money supply in order to pay people not to produce goods or services has consequences that not a lot of people are talking about.
It flies in the face of the free market and is as nonsensical as a negative interest rate. A loan that is forgivable is unconventional to say the least, because a loan is normally defined as an amount borrowed that is expected to be paid back with interest. When a loan is given on a first-come-first-served basis for the purpose of paying people not to work and is forgivable because it’s guaranteed by the United States government, we shouldn’t call it a loan.
It may be called socialism, maybe interventionism, and some may still prefer the term statism; but one thing is certain when it comes to the Paycheck Protection Program: it’s not capitalism!
Welfare cliffs are of course not the only reason so many capable Americans languish in partial dependency on government assistance. Dreadful government schools in poor areas and systematic obstacles to getting a job, such as minimum wage laws and occupational licensing laws, are also to blame. But the perverse incentives of America’s welfare system really hurt, and the CARES Act may have been a serious tipping point.
But, hey, there’s good news… well optimistic headlines as Treasury Secretary Steven Mnuchin said he anticipates most of the economy will restart by the end of August.
Finally, it is notable, we have lost 434 jobs for every confirmed US death from COVID-19 (60,999).
Was it worth it?
You will have only two choices now: do hard things, or submit to Globohomo. What are you doing today to prepare yourself and your people for Hard Tasks?
President Trump’s trade war is back. It’s an election year, and the efforts by the administration to ‘turbocharge’ an initiative to deglobalize that world by removing critical supply chains from China could be seen with new rounds of tariffs to strike Beijing for its handling of the COVID-19 outbreak, US officials told Reuters.
It’s clear that coronavirus lock downs have resulted in a crashed economy with more than 30 million people unemployed have derailed President Trump’s normal campaigning process and the promises of a vibrant economy. This could suggest President Trump is about to unleash tariff hell on Beijing as it would do two things: First, it would pressure US companies with supply chains in China to exit, and second, the president can say the tariffs are a punishment for the more than 68,000 Americans that have died from the virus.
“We’ve been working on [reducing the reliance of our supply chains in China] over the last few years but we are now turbocharging that initiative,” Keith Krach, undersecretary for Economic Growth, Energy and the Environment at the U.S. State Department told Reuters.
“I think it is essential to understand where the critical areas are and where critical bottlenecks exist,” Krach said, adding that the matter was key to U.S. security and one the government could announce new action on soon.
Current and former officials said the Commerce Department and other federal agencies are investigating ways to push US companies away from sourcing and manufacturing in China. “Tax incentives and potential re-shoring subsidies are among measures being considered to spur changes,” they said.
“There is a whole of government push on this,” said one. Agencies are probing which manufacturing should be deemed “essential” and how to produce these goods outside of China.
Another official said, “this moment is a perfect storm; the pandemic has crystallized all the worries that people have had about doing business with China.”
“All the money that people think they made by making deals with China before, now they’ve been eclipsed many-fold by the economic damage” from the coronavirus, the official said.
Amid a pandemic and recession, it appears the comments from US officials suggest geopolitics could soon become major headaches for global markets. President Trump’s latest comments have stirred new concerns that an economic war with China is about to restart. This could be potentially dangerous for investors who are looking for V-shaped recoveries.
Last week, President Trump said China “will do anything they can” to make him lose his re-election bid in November. He said Beijing faced a “lot” of possible consequences for the virus outbreak.
He told Reuters: “There are many things I can do. We’re looking for what happened.”
President Trump recently said he could slap new tariffs of up to 25% tax on $370 billion in Chinese goods currently in place. Officials said the president could introduce new sanctions on officials or companies or project closer relations with Taiwan, all moves that would infuriate Beijing.
Secretary of State Mike Pompeo recently said the administration is working with allies, including Australia, India, Japan, New Zealand, South Korea, and Vietnam, to “move the global economy forward.”
Conversations among US officials have so far been about “how we restructure … supply chains to prevent something like this from ever happening again,” Pompeo said.
And it appears Beijing is preparing for President Trump to strike. We noted on Monday that Chinese President Xi Jinping is preparing for a worst-case scenario of armed conflict with the US.
For years, we have documented the possibility of Thucydides Trap playing out between the US and China. That is when a dominant regional power (the US) feels threatened by the rise of a competing power (China). Read:
- Leaked Chinese Memo Warns Of “Thucydides Trap” With US, “War Is Unavoidable”
- US & China Are Collapsing Into Thucydides Trap
The evolution of the pandemic and economic crash appears to be deepening geopolitical tensions between Washington and Beijing.
War Room Pandemic Must Listen: Intelligence Reports Damn China In Virus Outbreaks:
“For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled.” – Richard Feynman – Rogers Commission
“It appears that there are enormous differences of opinion as to the probability of a failure with loss of vehicle and of human life. The estimates range from roughly 1 in 100 to 1 in 100,000. The higher figures come from the working engineers, and the very low figures from management. What are the causes and consequences of this lack of agreement? Since 1 part in 100,000 would imply that one could put a Shuttle up each day for 300 years expecting to lose only one, we could properly ask “What is the cause of management’s fantastic faith in the machinery? … It would appear that, for whatever purpose, be it for internal or external consumption, the management of NASA exaggerates the reliability of its product, to the point of fantasy.” – Richard Feynman – Rogers Commission
(Jim Quinn) The phrase “Throttle Up” jumped into my consciousness in the last week when Trump and his coronavirus task force of government hacks and bureaucrat lackeys announced the guidelines for re-opening America, as if a formerly $22 trillion economy, tied to a $90 trillion global economy, could be turned off and on like a light switch. Clap off, clap on. It just doesn’t work that way. The arrogance and hubris of people who think they can declare a global shut down for a virus and think they can easily deal with the intended and unintended consequences of doing so, is breathtaking in its outrageous recklessness and egotistical belief in their own infallibility.
This contemptible belief in their own superiority has permeated every fiber of those who rule over us, particularly among captured central bankers, corrupt politicians, bought off scientists, and billionaire oligarchs. It is the same groupthink, purposeful failure to address risks, and willfully ignoring those in the trenches that murdered seven astronauts on January 28, 1986 and has created the 2nd Great Depression of today. “Throttle Up” is going to result in the same outcome as it did in 1986.
Thirty-four years ago, on a cold January morning, Space Shuttle Challenger thundered into a crystal-clear blue Florida sky on its 10th voyage into space. The seven astronauts, including civilian Christa McAuliffe, put their trust in the “experts” from NASA, Thiokol, and Rockwell that the shuttle was safe and launching when the temperature was 30 degrees would not pose any added risks. When Richard Covey in Mission Control informed the crew to “go at throttle up”, they expected what their training told them would happen.
Instead, Space Shuttle Challenger exploded in a horrific display witnessed live on TV by 17% of the American population. School children all over the country were watching in their classrooms because McAuliffe was a school teacher chosen from thousands to go into space. It was a tragedy that shook the nation and led to one of Reagan’s better speeches that night, where he addressed the nation’s school children.
“I want to say something to the schoolchildren of America who were watching the live coverage of the shuttle’s takeoff. I know it is hard to understand, but sometimes painful things like this happen. It’s all part of the process of exploration and discovery. It’s all part of taking a chance and expanding man’s horizons. The future doesn’t belong to the fainthearted; it belongs to the brave. The Challenger crew was pulling us into the future, and we’ll continue to follow them.”
And he ended with this line from the poem ‘High Flight’:
“We will never forget them, nor the last time we saw them, this morning, as they prepared for their journey and waved goodbye and ‘slipped the surly bonds of Earth’ to ‘touch the face of God.’”
Thus, began the politician’s use of death to create heroes when human error, hubris, and recklessness is the true cause of avoidable tragedy and despair. Those seven astronauts were not heroes, they were victims. Just as we are all victims of the incompetency, arrogance, corruption and greed of those who lead our government, financial system, and corporate fascist oligarchy passing for capitalism in this globalist-controlled fraud of a former republic.
Using victims to create false heroes has now been elevated to an art form by politicians, the corporate media and mega-corporations to push whatever agenda supports their narrative. The propaganda machine is their most useful tool, as decades of dumbing down the public through government school indoctrination has created millions of pliable useful idiots who will believe anything presented by “experts” on the boob tube. The fear and panic created by politicians and the media about a virus only marginally more dangerous than the common flu is the perfect representation of this power over reality.
The Space Shuttle Challenger disaster is a perfect analogy for the current debacle being perpetrated on the American people by fecklessly corrupt authoritarian politicians, IYI medical “experts”, and fear mongering fake news media pushing the narrative in whatever direction benefits their bottom line. There is the simple technical reason why the Challenger blew up and then there is the real reason – the truthful explanation. What we must understand from history and experience is, if we don’t accept the narratives pushed by “experts” and think critically based upon facts, the truth will eventually be revealed.
The immediate cause of the explosion was a failure in the O-rings sealing the aft field joint on the right solid rocket booster, causing pressurized hot gases and eventually flame to “blow by” the O-ring and contact the adjacent external tank, causing structural failure. The truth is, decisions made and not made over years sealed the fate of those victims, just as we are facing today with this man-made global catastrophe.
After the shuttle disaster, politicians do what they do best, create a commission to cover-up the true cause and protect the establishment from blame. It was led by William Rogers, a government bureaucrat for decades, along with numerous other people with a vested interest in protecting NASA, the massive defense corporations sucking off the government teat, and the crooked politicians supporting NASA.
There were a couple of members from the trenches, like Sally Ride and Chuck Yeager, but the thorn in the side of the establishment was theoretical physicist and Nobel Prize winner Richard Feynman. Despite being racked by cancer, Feynman reluctantly agreed to join the commission, knowing he was going to be out of his element in the swamp of Washington D.C. The nation’s capital, he told his wife, was “a great big world of mystery to me, with tremendous forces.”
Feynman immediately created problems by thinking outside the box and having the gall to ignore the excuses and lies of high-level managers at NASA, Thiokol and Rockwell, while seeking the opinions of the actual engineers who did the real work. His unwillingness to toe the company line irritated the old guard looking to cover up the truth. During a break in one hearing, Rogers told commission member Neil Armstrong, “Feynman is becoming a pain in the ass.”
The establishment always thinks anyone who questions their authority or expertise is a pain in the ass, at best. Often, they treat anyone with an opposing viewpoint as the enemy, and will undertake any means to shut them up and destroy them. Witness how YouTube and Google are currently memory holing anything questioning the establishment narrative about this virus or Joe Biden’s sexual assault on a young woman as a Senator. Feynman embarrassed the “experts” on national TV when he conducted a simple demonstration of why the shuttle blew up.
“I took this stuff I got out of your [O-ring] seal and I put it in ice water, and I discovered that when you put some pressure on it for a while and then undo it, it doesn’t stretch back. It stays the same dimension. In other words, for a few seconds at least, and more seconds than that, there is no resilience in this particular material when it is at a temperature of 32 degrees. I believe that has some significance for our problem.” – Richard Feynman
The truth is top management at NASA knew the O-rings were defective in 1977 and contained a potentially catastrophic flaw. NASA managers also disregarded warnings from engineers about the dangers of launching posed by the low temperatures of that morning, and failed to adequately report these technical concerns to their superiors. Thiokol engineer Bob Ebeling in October 1985 wrote a memo—titled “Help!” so others would read it—of concerns regarding low temperatures and O-rings.
There were numerous teleconferences on the 27th of January where Ebeling and other engineers argued against the launch due to the freezing temperatures. According to Ebeling, a second conference call was scheduled with only NASA and Thiokol management, excluding the engineers. Thiokol management disregarded its own engineers’ warnings and now recommended the launch proceed as scheduled. Ebeling told his wife that night Challenger would blow up. He was right.
The Commission attempted to let NASA’s culture off the hook with no recommended sanctions against the deeply flawed organization. Feynman could not in good conscience recommend NASA should continue without a suspension of operations and a major overhaul. His fellow commission members were alarmed by Feynman’s dissent. Feynman was so critical of flaws in NASA’s “safety culture” that he threatened to remove his name from the report unless it included his personal observations on the reliability of the shuttle, which appeared as Appendix F.
The quote at the beginning of this article about upper management believing there was only a 1 in 100,000 chance of disaster, when the odds were really 1 in 100 or less, came from Feynman’s dissent in Appendix F. The fools at NASA and on the Commission didn’t understand or willfully ignored Feynman’s first principle:
“The first principle is that you must not fool yourself — and you are the easiest person to fool.” – Richard Feynman
The truth stands on its own and is self-evident. Feynman is an example of an actual hero, not an MSM touted hero like Bernanke, Paulson, Geithner, Powell and the dozens of other psychopaths in suits who have been portrayed in the press as brilliant financial minds that saved the world. Real heroes take a singular stand for the truth, when everyone else goes along with mistruths, half-truths, and false narratives of those with a subversive self-serving agenda. The world is inundated in a blizzard of lies, designed to further the plans of those who control the levers of power and wealth.
Lies, backed by an unceasing stream of propaganda and fear, are being used to panic the masses into willingly abandon their freedoms, liberties and rights for the chains of false safety, security, and state control over every aspect of their lives. It is astonishing to watch in real time as a vast swath of America cowers in their homes, as demanded by their authoritarian elected leaders, while their livelihoods and net worth are purposely destroyed to benefit the .1% ruling class.
I see multiple analogies today with the shuttle disaster and the lessons learned and not learned. The leadership of NASA did not learn, as the same disregard for facts and data led to the Space Shuttle Columbia disaster seventeen years later.
Just as the mid-level engineers at Thiokol warned of imminent disaster for years before the tragedy, there have been voices in the wilderness (scorned and ridiculed as conspiracy theorists) warning about the reckless arrogance of the Federal Reserve and their Wall Street owners, as they pumped up the largest financial bubble in world history as their solution for the catastrophe created by their previous monetary disaster in 2008. Just as the hubristic out of touch leadership of NASA murdered fourteen innocent astronauts, the Fed has now twice destroyed millions of lives in the last twelve years.
These self-proclaimed experts have known the financial system was going to explode since the middle of 2019 when they began a series of desperate ruses, behind the curtain of the debt saturated Ponzi scheme, to keep the Wall Street cabal and hedge fund billionaires from facing the consequences of their fraudulent monetary machinations.
The surprise cutting of interest rates and emergency repo operations every night as we entered 2020 covered up the imminent disaster, as the mindless Harvard and Wharton MBAs programmed their high frequency trading computers to buy, buy, buy. Best economy ever. Greatest in the history of the world. Stock market at all-time highs. Then the China flu arrived, just in time. A quick 30% plunge in the stock market was all the Fed needed to rescue their true constituents – Wall Street and billionaire hedge funds – with $6 trillion, under the guise of saving the financial system for the little people.
If you want to figure out who benefits from a man-made crisis, just follow the money. The Federal government has committed at least $3 trillion of your grandchildren’s money to the crisis thus far, with the Federal Reserve announcing another $6 trillion of monetary support. That’s $9 trillion, or $70,000 per household. The average household size is 2.5. If we assume each household got their $1,200 Covid-19 rebate (actually just giving them back the taxes they already pay), that’s $3,000 per household.
A critical thinking individual might wonder who got the other $67,000 of stimulus, or 95.7% of the money allocated to “save America”. It certainly hasn’t made its way to small business owners who are going out of business faster than burning gas through a defective O-ring. If only $400 billion is making its way into the pockets of formerly working Americans, where did the other $8.6 trillion go?
It went directly into the pockets of Wall Street bankers, hedge fund managers, and the biggest corporations on the planet. The Fed has used this faux crisis to further enrich and bailout the richest men on the planet, while again dropping interest rates to zero and throwing grandma under the bus again. Let her eat cat food, declares Jerome Powell, champion and hero of downtrodden bankers. He’ll be “earning” $25 million a year from Wall Street as his payoff, the minute he saunters out of the Eccles Building in a couple years.
As unemployment approaches 20%, GDP plunges by 30%, food banks are running out of food, citizens remain locked in their homes under threat of arrest, and human misery approaches 1930 Great Depression levels, the Fed has managed to buy enough toxic debt and artificially rig the stock market, to engineer a 27% surge from its March lows. We should all applaud the brilliance of Powell and his fellow sycophants, as they have saved the asses of the .1%, for now.
The fate of this country was sealed well before this overblown hyped coronavirus appeared, to accelerate our demise. The warnings about too much debt, rigged financial markets, unrestrained politicians running trillion dollar deficits, silicon valley giants conspiring with the Deep State to turn the country into a surveillance state, a military industrial complex creating conflict around the globe, and a state media propaganda machine providing false information to the masses, were dismissed by those who could have acted.
The deficit is now expected to hit $3.7 trillion in 2020, pushing the national debt to $27 trillion. This country is 231 years old and 85% of our debt has been taken on in the last 23 years. The Fed’s balance sheet was $800 billion in 2008. It will shortly surpass $10 trillion, just a mere 1,250% increase in 12 years. Do you understand the analogy with the Space Shuttle Challenger yet?
We’ve left the launchpad at the same rate and angle as the Fed balance sheet. Those in charge assure us they have everything under control, but the coronavirus will prove to be our frozen O-ring. It has been decades of mismanagement, corruption, bad decisions, horrible leadership, delusional thinking, herd mentality, and an inability to summon the courage to deal with critical problems before they blew our country into a million smoking pieces of debris.
Average Americans are trapped in the crew cabin relying on Trump, Powell, Mnuchin, and a myriad of other “experts” to safely launch the American economy back into space. Trump has convened a re-opening task force consisting of dozens of CEOs from the biggest mega-corporations on earth. I know because I watched him read their names for fifteen minutes during one of his daily mind-numbing press conferences. If you had any doubt about who your leaders work for, that list tells you all you need to know. No one from your local steak shop, butcher or candlestick maker are represented on this task force. It reminded me of the list of prominent people chosen for the Rogers Commission.
The belief by those in charge that things can just go on as if nothing has happened are as delusional as the NASA administrators who were willfully blind to the truth of an impending disaster. The actions taken by the political and financial arms of the Deep State have guaranteed this malfunction will prove fatal for our country. The only question is how many seconds we have before our throttle up moment. I tend to be a pessimist, so I am leaning towards an explosion before the November election. The forthcoming financial catastrophic detonation will set off a chain of events considered impossible just a few short months ago.
The core elements of this Fourth Turning (debt, civic decay, global disorder) are going to juxtapose and connect, accelerating into a chain reaction of chaos, civil uprising, global war, mass casualties, the fall of empires, and ultimately the destruction of the existing social order (aka Deep State). Hopefully, heroes of Feynman’s stature will arise to help rebuild our country based upon common sense, truthfulness, factual assessment of our situation, and honoring the essential principles of our Constitution. Reality must take precedence over delusions, propaganda, and lies for us to regain our nation. Are we capable of learning the lessons from this major malfunction?
“Flight controllers here looking very carefully at the situation. Obviously, a major malfunction.” – Steve Nesbitt – NASA Mission Control
(Pepe Escobar) You don’t need to read Michel Foucault’s work on biopolitics to understand that neoliberalism – in deep crisis since at least 2008 – is a control/governing technique in which surveillance capitalism is deeply embedded.
But now, with the world-system collapsing at breathtaking speed, neoliberalism is at a loss to deal with the next stage of dystopia, ever present in our hyper-connected angst: global mass unemployment.
Henry Kissinger, anointed oracle/gatekeeper of the ruling class, is predictably scared. He claims that, “sustaining the public trust is crucial to social solidarity.” He’s convinced the Hegemon should “safeguard the principles of the liberal world order.” Otherwise, “failure could set the world on fire.”
That’s so quaint. Public trust is dead across the spectrum. The liberal world “order” is now social Darwinist chaos. Just wait for the fire to rage.
The numbers are staggering. The Japan-based Asian Development Bank (ADB), in its annual economic report, may not have been exactly original. But it did note that the impact of the “worst pandemic in a century” will be as high as $4.1 trillion, or 4.8 percent of global GDP.
This an underestimation, as “supply disruptions, interrupted remittances, possible social and financial crises, and long-term effects on health care and education are excluded from the analysis.”
We cannot even start to imagine the cataclysmic social consequences of the crash. Entire sub-sectors of the global economy may not be recomposed at all.
The International Labor Organization (ILO) forecasts global unemployment at a conservative, additonal 24.7 million people – especially in aviation, tourism and hospitality.
According to the ILO, income losses for workers may range from $860 billion to an astonishing $3.4 trillion. “Working poverty” will be the new normal – especially across the Global South.
“Working poor,” in ILO terminology, means employed people living in households with a per capita income below the poverty line of $2 a day. As many as an additional 35 million people worldwide will become working poor in 2020.
Switching to feasible perspectives for global trade, it’s enlightening to examine that this report about how the economy may rebound is centered on the notorious hyperactive merchants and traders of Yiwu in eastern China – the world’s busiest small-commodity, business hub.
Their experience spells out a long and difficult recovery. As the rest of the world is in a coma, Lu Ting, chief China economist at Nomura in Hong Kong stresses that China faces a 30 percent decline in external demand at least until next Fall.
Neoliberalism in Reverse?
In the next stage, the strategic competition between the U.S. and China will be no-holds-barred, as emerging narratives of China’s new, multifaceted global role – on trade, technology, cyberspace, climate change – will set in, even more far-reaching than the New Silk Roads. That will also be the case in global public health policies. Get ready for an accelerated Hybrid War between the “Chinese virus” narrative and the Health Silk Road.
The latest report by the China Institute of International Studies would be quite helpful for the West — hubris permitting — to understand how Beijing adopted key measures putting the health and safety of the general population first.
Now, as the Chinese economy slowly picks up, hordes of fund managers from across Asia are tracking everything from trips on the metro to noodle consumption to preview what kind of economy may emerge post-lock down.
In contrast, across the West, the prevailing doom and gloom elicited a priceless editorial from The Financial Times. Like James Brown in the 1980s Blues Brothers pop epic, the City of London seems to have seen the light, or at least giving the impression it really means it. Neoliberalism in reverse. New social contract. “Secure” labor markets. Redistribution.
Cynics won’t be fooled. The cryogenic state of the global economy spells out a vicious Great Depression 2.0 and an unemployment tsunami. The plebs eventually reaching for the pitchforks and the AR-15s en masse is now a distinct possibility. Might as well start throwing a few breadcrumbs to the beggars’ banquet.
That may apply to European latitudes. But the American story is in a class by itself.
For decades, we were led to believe that the world-system put in place after WWII provided the U.S. with unrivaled structural power. Now, all that’s left is structural fragility, grotesque inequalities, unplayable Himalayas of debt, and a rolling crisis.
No one is fooled anymore by the Fed’s magic quantitative easing powers, or the acronym salad – TALF, ESF, SPV – built into the Fed/U.S. Treasury exclusive obsession with big banks, corporations and the Goddess of the Market, to the detriment of the average American.
It was only a few months ago that a serious discussion evolved around the $2.5 quadrillion derivatives market imploding and collapsing the global economy, based on the price of oil skyrocketing, in case the Strait of Hormuz – for whatever reason – was shut down.
Now it’s about Great Depression 2.0: the whole system crashing as a result of the shutdown of the global economy. The questions are absolutely legitimate: is the political and social cataclysm of the global economic crisis arguably a larger catastrophe than Covid-19 itself? And will it provide an opportunity to end neoliberalism and usher in a more equitable system, or something even worse?
‘Transparent’ Black Rock
Wall Street, of course, lives in an alternative universe. In a nutshell, Wall Street turned the Fed into a hedge fund. The Fed is going to own at least two thirds of all U.S. Treasury bills in the market before the end of 2020.
The U.S. Treasury will be buying every security and loan in sight while the Fed will be the banker – financing the whole scheme.
So essentially this is a Fed/Treasury merger. A behemoth dispensing loads of helicopter money.
And the winner is Black Rock—the biggest money manager on the planet, with tentacles everywhere, managing the assets of over 170 pension funds, banks, foundations, insurance companies, in fact a great deal of the money in private equity and hedge funds. Black Rock — promising to be fully “transparent” — will buy these securities and manage those dodgy SPVs on behalf of the Treasury.
Black Rock, founded in 1988 by Larry Fink, may not be as big as Vanguard, but it’s the top investor in Goldman Sachs, along with Vanguard and State Street, and with $6.5 trillion in assets, bigger than Goldman Sachs, JP Morgan and Deutsche Bank combined.
Now, Black Rock is the new operating system (OS) of the Fed and the Treasury. The world’s biggest shadow bank – and no, it’s not Chinese.
Compared to this high-stakes game, mini-scandals such as the one around Georgia Senator Kelly Loffler are peanuts. Loffler allegedly profited from inside information on Covid-19 by the CDC to make a stock market killing. Loffler is married to Jeffrey Sprecher – who happens to be the chairman of the NYSE, installed by Goldman Sachs.
While corporate media followed this story like headless chickens, post-Covid-19 plans, in Pentagon parlance, “move forward” by stealth.
The price? A meager $1,200 check per person for a month. Anyone knows that, based on median salary income, a typical American family would need $12,000 to survive for two months. Treasury Secretary Steven Mnuchin, in an act of supreme effrontry, allows them a mere 10 percent of that. So American taxpayers will be left with a tsunami of debt while selected Wall Street players grab the whole loot, part of an unparalleled transfer of wealth upwards, complete with bankruptcies en masse of small and medium businesses.
Fink’s letter to his shareholders almost gives the game away: “I believe we are on the edge of a fundamental reshaping of finance.”
And right on cue, he forecasted that, “in the near future – and sooner than most anticipate – there will be a significant reallocation of capital.”
He was referring, then, to climate change. Now that refers to Covid-19.
Implant Our Nano chip, Or Else?
The game ahead for the elites, taking advantage of the crisis, might well contain these four elements:
- a social credit system,
- mandatory vaccination,
- a digital currency,
- and a Universal Basic Income (UBI).
This is what used to be called, according to the decades-old, time-tested CIA playbook, a “conspiracy theory.” Well, it might actually happen.
A social credit system is something that China set up already in 2014. Before the end of 2020, every Chinese citizen will be assigned his/her own credit score – a de facto “dynamic profile”, elaborated with extensive use of AI and the internet of things (IoT), including ubiquitous facial recognition technology. This implies, of course, 24/7 surveillance, complete with Blade Runner-style roving robotic birds.
The U.S., the U.K., France, Germany, Canada, Russia and India may not be far behind. Germany, for instance, is tweaking its universal credit rating system, SCHUFA. France has an ID app very similar to the Chinese model, verified by facial recognition.
Mandatory vaccination is Bill Gates’s dream, working in conjunction with the WHO, the World Economic Forum (WEF) and Big Pharma. He wants “billions of doses” to be enforced over the Global South. And it could be a cover to everyone getting a digital implant.
Here it is, in his own words. At 34:15:
“Eventually what we’ll have to have is certificates of who’s a recovered person, who’s a vaccinated person…Because you don’t want people moving around the world where you’ll have some countries that won’t have it under control, sadly. You don’t want to completely block off the ability for people to go there and come back and move around.”
Then comes the last sentence which was erased from the official TED video. This was noted by Rosemary Frei, who has a master on molecular biology and is an independent investigative journalist in Canada. Gates says: “So eventually there will be this digital immunity proof that will help facilitate the global reopening up.”
This “digital immunity proof” is crucial to keep in mind, something that could be misused by the state for nefarious purposes.
The three top candidates to produce a coronavirus vaccine are American biotech firm Moderna, as well as Germans CureVac and BioNTech.
Digital cash might then become an offspring of blockchain. Not only the U.S., but China and Russia are also interested in a national crypto-currency. A global currency – of course controlled by central bankers – may soon be adopted in the form of a basket of currencies, and would circulate virtually. Endless permutations of the toxic cocktail of IoT, blockchain technology and the social credit system could loom ahead.
Already Spain has announced that it is introducing UBI, and wants it to be permanent. It’s a form insurance for the elite against social uprisings, especially if millions of jobs never come back.
So the key working hypothesis is that Covid-19 could be used as cover for the usual suspects to bring in a new digital financial system and a mandatory vaccine with a “digital identity” nano chip with dissent not tolerated: what Slavoj Zizek calls the “erotic dream” of every totalitarian government.
Yet underneath it all, amid so much anxiety, a pent-up rage seems to be gathering strength, to eventually explode in unforeseeable ways. As much as the system may be changing at breakneck speed, there’s no guarantee even the 0.1 percent will be safe.
WAR WITH THE INTERNATIONAL BANKING CARTEL? OR NESARA?
Tucked in the $2 trillion coronavirus stimulus bill passed by Congress is a curious provision that essentially outlines how the Treasury and the Federal Reserve will merge into one organization. Is this President Trump’s way of taking back America’s monetary sovereignty, or is it a smokescreen that expands the Fed’s power?
No one alive has experienced an economic plunge this sudden…
We can’t say we’re in a recession yet, at least not formally. A committee decides these things—no, really. The government generally adopts the view that a contraction is not a recession unless economic activity has declined over two quarters. But we’re in a recession and everyone knows it. And what we’re experiencing is so much more than that: a black swan, a financial war, a plague.
Maybe things feel normal where you are. Maybe things do not feel normal.
Things are not normal. For weeks or months, we won’t know how much GDP has slowed down and how many people have been forced out of work. Government statistics take a while to generate. They look backwards, the latest numbers still depicting a hot economy near full employment. To quantify the present reality, we have to rely on anecdotes from businesses, surveys of workers, shreds of private data, and a few state numbers. They show an economy not in a downturn or a contraction or a soft patch, not experiencing losses or selling off or correcting. They show evaporation, disappearance on what feels like a biblical scale.
What is happening is a shock to the American economy more sudden and severe than anyone alive has ever experienced. The unemployment rate climbed to its apex of 9.9 percent 23 months after the formal start of the Great Recession. Just a few weeks into the domestic coronavirus pandemic, and just days into the imposition of emergency measures to arrest it, nearly 20 percent of workers report that they have lost hours or lost their job. One payroll and scheduling processor suggests that 22 percent of work hours have evaporated for hourly employees, with three in 10 people who would normally show up for work not going as of Tuesday. Absent a strong governmental response, the unemployment rate seems certain to reach heights not seen since the Great Depression or even the miserable late 1800s. A 20 percent rate is not impossible.
State jobless filings are growing geometrically, a signal of how the national numbers will change when we have them. Last Monday, Colorado had 400 people apply for unemployment insurance. This Tuesday: 6,800. California has seen its daily filings jump from 2,000 to 80,000. Oregon went from 800 to 18,000. In Connecticut, nearly 2 percent of the state’s workers declared that they were newly jobless on a single day. Many other states are reporting the same kinds of figures.
These numbers are subject to sharp changes; things like large plant closures lead them to jump and fall and jump and fall. But for them to rise so precipitously, across all of the states? To stay high? That is new. The economy is not tipping into a jobs crisis. It is exploding into one. Given the trajectory of state reports, it is certain that the country will set a record for new jobless claims next week, not only in raw numbers but also in the share of workers laid off. The total is expected to be in the range of 1.5 million to 2.5 million, and to climb from there.
None of that is surprising.
The economy needs to halt to protect lives and sustain the medical system. Planes have been grounded, conferences canceled, millions of Americans told not to leave their homes except to get groceries and other necessities. Because of the emergency measures now in place, businesses have had no choice but to let workers go. The list of employers laying off workers en masse includes cruise lines, airlines, hotels, restaurants, bars, cabinetmakers, linen companies, newspapers, bookstores, caterers, and festivals. I started adding up numbers in news reports, and quit when I hit 100,000.
The economy had been plodding along in its late expansion, growing at a 2 or 3 percent annual pace. Now, private forecasters expect it will contract at something like a 15 percent pace, though nobody really knows. A viral quarantine is impossible to model, because modeling would mean knowing how long the necessary emergency measures will last and how well the government will respond with some degree of accuracy. Still, real-time measures show a consumer-economy apocalypse. One credit-card processor said that payments to businesses were down 30 percent in Seattle, 26 percent in Portland, and 12 percent in San Francisco. Nearly every state is seeing dramatic declines, with hotels and restaurants hit particularly hard.
The markets are not normal, either. The stock market lost 20 percent of its value in just 21 days – the fastest and sharpest bear market on record, faster than 1929, faster than 1987, 10 times faster than 2007.
The financial system has required no less than seven emergency interventions by the Federal Reserve in the past week.The country’s central bank has wrenched interest rates to zero, started buying more than half a trillion dollars of financial assets, and opened up special facilities to inject liquidity into the financial system.
Yet in the real economy, everything has halted, frozen in place. This is not a recession. It is an ice age.
After falling for 3 of the last 4 months, and following Germany’s disastrous January print, US Industrial Production was expected to drop by 0.2% but yet again it disappointed, falling 0.3% MoM.
This means US Industrial Production has contracted year-over-year for 5 straight months.
- Utilities fell 4% in Jan. after falling 6.2% in Dec. (warm weather-related?)
- Mining rose 1.2% in Jan. after rising 1.5% in Dec.
In the manufacturing segment, production slipped 0.1% MoM, matching expectations, but is down year-over-year for the seventh straight month…
Finally, we note that Capacity Utilization slumped to 76.8%.
And this is before the impact of the virus had fully hit global supply chains.
The U.S. Constitution states:
Article 1, Section 8
1. The Congress shall have Power …
5. To coin Money, regulate the value thereof, and of foreign coin….
6. To provide for the punishment of counterfeiting … current coin of the United States.
Article 1, Section 10
- No state shall … emit Bills of Credit and make any Thing but gold and silver Coin a Tender in Payment of Debts.
The intent of the Framers could not have been clearer. The Constitution clearly and unequivocally brought into existence a monetary system based on gold coins and silver coins being the official money of the United States.
Notice that the states are prohibited from issuing “bills of credit.” What are “bills of credit.” That was the term used during that time for paper money. The Constitution expressly prohibited the states from publishing paper money and making anything but gold and silver coins official legal money.
What about the federal government? The Constitution didn’t expressly prohibit it from emitting “bills of credit” like it did with the states. Does that mean that the federal government was empowered to make paper money the official money of the United States?
No, it does not mean that. In the case of the federal government, its powers are limited to those enumerated in the Constitution. If a power isn’t enumerated, then the federal government is automatically prohibited from exercising it.
Therefore, it was unnecessary for the Framers to provide for an express prohibition on the federal government to make paper money the official legal tender of the nation. All that was necessary was to ensure that the Constitution did not empower the federal government to issue paper money.
The powers relating to money that are delegated to the federal government, which are stated above, expressly make it clear that gold coins and silver coins, not paper, were to be the official money of the country. That is reflected by the power given the federal government to “coin money.” At the risk of belaboring the obvious, one does not “coin” paper. Paper is published or “emitted.” It is not coined. Coins are coined.
The provision on counterfeiting also expressly confirms that the official money of the United States was to be gold coins and silver coins. The Framers didn’t provide for punishment for counterfeiting paper money because there was no paper money. They provided for punishment for counterfeiting “current coin of the United States.”
Add up all of these provision and there is but one conclusion that anyone can logically and reasonably draw: The Constitution established a monetary system in which gold and silver coins were to be the official money of the United States.
The power to borrow
That’s not to say, of course, that federal officials could not borrow money. The Constitution did give them that power:
Article1, Section 8
1. The Congress shall have Power …
2. To borrow money on the credit of the United States.
When the federal government borrows money, it issues debt instruments to lenders, consisting of bills, notes, or bonds. But everyone understood that federal debt instruments were not money but instead simply promises to pay money. The money that they promised to pay was the gold and silver coins, which were the official money of the country.
And in fact, that was the monetary system of the United States for more than a century, one in which gold coins and silver coins were the official money of the American people.
It is often said that the “gold standard” was a system in which paper money was “backed by gold.” Nothing could be further from the truth. There was no paper money. The “gold standard” was a system where gold coins, along with silver coins, were the official money of the country.
Monetary debauchery and destruction
It all came to an end in the 1930s, when the (D) Franklin Roosevelt regime ordered all Americans to deliver their gold coins to the federal government. Anyone who failed to do so would be prosecuted for a federal felony offense and severely punished through incarceration and fine if convicted.
In exchange, people were handed federal debt instruments, ones that promised to pay money. But since the money was now illegal, the debt instruments were promises to pay nothing. That’s reflected by the Federal Reserve Notes that people now use to pay for things.
Roosevelt’s actions were among the most abhorrent in the history of the United States. In one fell swoop, he and his regime destroyed what had been the finest and soundest monetary system in the history of the world, one that contributed mightily to the tremendous increase in prosperity and standards of living in the 19th century.
What is also amazing is that Roosevelt did it without even the semblance of a constitutional amendment. To change a system that the Constitution established requires a constitutional amendment. That is an arduous and difficult process, which is what the Framers wanted. Roosevelt circumvented that process by simply getting Congress to nationalize people’s gold.
The result of Roosevelt’s illegal and immoral actions regarding money and the Constitution? Moral, economic, and monetary debauchery, which has entailed almost 90 years of plundering and looting people through monetary debasement and devaluation to finance the ever-burgeoning expenses of America’s welfare-warfare state way of life.
The solution to all this monetary mayhem is doing what the Framers did: Separate private banking from the state entirely, in the same way that they separated church and state. This means terminate all government involvement in banking, including by ending the private Federal Reserve Bank. And while we’re at it, nationalize the sovereign city, District Of Columbia which would end London and Vatican maritime law control over America. No doubt they won’t go down without a fight however, this is the jump start necessary towards restoring any chance for freedom, peace, and prosperity to our land.
Georgetown University Medical Center reveals brutal dynamic governing long-term care in America
The results of a six-year study by Georgetown University Medical Center revealed just how fast U.S. nursing home prices have been increasing all across America. And the future looks just as grim.
Dr. Sean Huang, the study’s lead author, said the brutal dynamic governing long-term care in America — where many nursing home residents must spend down the bulk of their life savings before qualifying for federal assistance — is intensifying. California, Florida, New York and Texas all saw increases that far outstripped the 11.6% rise in inflation between 2005 and 2010, the period reviewed by Georgetown’s analysis of eight states. Additional data show the upward trend has continued in the years since.
And it’s not just baby boomers who need to worry — Generation X, millennials and Generation Z might face an even darker old age. Rising wage pressure on a sector in need of workers is driving up costs, and unless Washington comes up with a fix, be it a version of Medicare-for-All or something less ambitious, the funding for some programs is projected to start running out in the next decade.
“We’re talking about long stays — people who have disabilities, dementia, Parkinson’s disease,” Mr. Huang explained about the growing nursing home population. “Medicare does not cover that. They will pay out-of-pocket until they use all of their wealth.”
Many Americans have no idea how Medicare works, including those approaching retirement. A sort-of government health insurance policy largely for older Americans, eligibility generally begins at age 65, covering some of the costs of routine and emergency medical care. What it doesn’t cover is most aspects of long-term “custodial” care — as in nursing homes, where a large portion of Americans can expect to spend the last years of their lives.
That’s where Medicaid — state-administered coverage for Americans whose assets fall below a certain level — comes in. For those who qualify for nursing home admission, Medicaid generally requires they exhaust most of their assets first before qualifying for coverage. Without expensive long-term care insurance, which most people don’t have, an increasing number of older Americans are falling into this financial trap, Mr. Huang said.
And their nest eggs are being depleted more quickly than ever. Mr. Huang’s study found nursing home price rises over the period measured generally outpaced increases in overall medical care (20.2%) and consumer prices (11.7%). For example, in California between 2002 and 2011, the median out-of-pocket cost for nursing home care increased by 56.7%.
Mr. Huang and three co-authors began looking into the matter in 2013. With no central database, they had to collect information from each state and individual nursing homes. Some states only had data through 2010, he said. In the end, they managed to crunch data from an average of 3,900 nursing homes for each of the years measured, representing approximately 27% of freestanding U.S. facilities.
Nursing homes in New York during the period reviewed had the highest average daily price of $302, while Texas had the lowest average daily price of $121. Additional information has shown that nursing home costs have continued to increase at a much higher rate than inflation, albeit slightly slower than the study period.
In 2010, the average price per day for nursing home care in California was $217, up more than 30% (with Florida close behind) from 2005. In a more recent analysis, Mr. Huang calculated that, from 2010 to 2015, nursing home prices in California rose more slowly, by roughly 19.6% to $258 per day. However, inflation from 2010 to 2015 only increased by 8.7%, he noted. Mr. Huang said his research doesn’t point to any improvement going forward.
“I don’t see there’s any major changes that suggest the trend will be different,” Mr. Huang said.
Indeed, the median daily price for a private room in a California nursing home just last year was $323, while the national median was $275 per day, according to life insurance company Genworth. Looking at the issue from an annual perspective, the median cost in the U.S. for a private room in a nursing home was $100,375. Oklahoma provided the cheapest annual median cost at $63,510, while Alaska was the most expensive at $330,873, Genworth data showed.
Nursing homes have long been a financial drain on most who need them, constituting one of the greatest risks retirees face when it comes to managing retirement funds, a report from the U.S. Department of Health and Human Services showed. Unfortunately, the annual costs for nursing home care will continue to grow at a rate much faster than inflation, according to Urban Institute Senior Fellow Richard W. Johnson.
“It’s that labor market pressure,” Mr. Johnson said. More elderly Americans mean more demand for nursing home care, and more demand for nursing home employees. Wages go up, and the cost is passed along to consumers who, under the current system by which America looks after its elderly, coverage is limited.
In an industry that requires significant hands-on attention, technology can’t eliminate many jobs, Mr. Johnson said. And just when the labor market for nursing homes is already tight, uncertainty over U.S. immigration policies may further reduce available workers, he said. In 2017, immigrants made up 23.5% of formal and non-formal long-term care sector workers, according to Health Affairs.
“It’s unlikely that you’re going to see any improvement in these trends, and if anything, things will probably get worse because nursing homes are probably going to face something of a worker shortage,” Mr. Johnson said. Home health aides and personal care aides are ranked as the third and fourth fastest growing occupations and are expected to increase 47% and 39% respectively from 2016 to 2026, according to the Bureau of Labor Statistics.
“The baby boom generation is so large,” Mr. Johnson said. “They’re approaching their 80s, and that means that many more of them are going to need nursing home care or other types of long term care.”
“If there would be a higher reimbursement rate, either by Medicaid or Medicare, nursing home quality would be likely to improve.”
Another trend emerging in the industry that may be driving up costs is Wall Street. Four out of the 10 largest for-profit nursing home chains were purchased by private equity firms from 2003-2008, according to a case study analyzing private equity takeover.
Research on the impact of private equity has shown mixed results, though one study showed how a nursing home chain that was taken over by a private equity firm showed a general reinforcement of profit-seeking strategies that were already in place, while adding some strategies aimed at improving efficiency. Other reports have detailed darker results.
During the Obama administration, the Community Living Assistance Services and Supports Act (CLASS Act) was signed into law to help ease the burden as part of the Affordable Care Act (ACA), but it was later rescinded by Congress over concerns voluntary enrollment wasn’t viable — premiums would be too high and the system would eventually collapse, Mr. Johnson said. This left the ACA with little to no assistance for long-term care costs.
Some states have started taking matters into their own hands. Washington State passed a bill in April that would implement a 0.58% payroll tax that would give residents up to $36,500 to pay for long-term care services. Payroll tax will begin collecting in 2022, while residents can start withdrawing in 2025. But that’s just one state, and the problem, Huang and Johnson note, is national in scope.
“If there would be a higher reimbursement rate, either by Medicaid or Medicare, nursing home quality would be likely to improve,” Mr. Huang said. “But I don’t see that happening in the near future.
RBOB Gasoline futures jumped overnight, accelerating their recent ascent ever since the explosion and massive inferon at the Philadelphia Energy Solutions (PES) plant, following a Reuters report that the largest east coast refinery is expected to seek to permanently shut its oil refinery in the city after a massive fire caused substantial damage to the complex.
Shutting the refinery, the largest and oldest on the U.S. East Coast, would result in not only hundreds of lost jobs but also sharply higher gasoline prices as gasoline supplies are squeezed in the busiest, most densely populated corridor of the United States.
PES is expected to file a notice of intent with state and federal regulators as early as Wednesday, setting in motion the process of closing the refinery, the sources said.
The refinery, which could still change its plans, is also expected to begin layoffs of the 700 union workers at the plant as early as Wednesday, Reuters reported. The layoffs could include about half of the union workforce, with the remaining staff staying at the site until the investigation into the blast concludes.
As reported previously, the 335,000 barrel-per-day (bpd) complex, located in a densely populated area in the southern part of the city, erupted in flames in the early hours on Friday, in a series of explosions that could be heard miles away and which some compared to a meteor strike or a nuclear bomb going off.
The cause of the fire was still unknown as of Tuesday, though city fire officials said it started in a butane vat around 4 a.m. (0800 GMT). It destroyed a 30,000-bpd alkylation unit that uses hydrofluoric acid to process refined products. Had the acid caught fire, it could have resulted in a vapor cloud that can damage the skin, eyes and lungs of nearby residents.
Prior to the massive inferno, the refinery had suffered from years of financial struggles, forcing it to slash worker benefits and scale back capital projects to save cash. It went through a bankruptcy process last year to reduce its debt, but its difficulties continued as its cash on hand dwindled even after emerging from bankruptcy in August; some have speculated that cost cutting resulted in the structure becoming fragile and susceptible to accident.
After bankruptcy, Credit Suisse Asset Management and Bardin Hill became the controlling owners, with former primary owners Carlyle Group and Sunoco Logistics, an Energy Transfer subsidiary, holding a minority stake.
Last Friday’s blaze was the second in two weeks at the complex, spurring calls from Philadelphia’s mayor for a task force to look into both the cause and community outreach in the wake of the incidents. A spokesperson for Mayor Jim Kenney declined to comment on the potential closure of the plant.
That may be difficult as investigators on the scene are said to be dealing with unstable structures that need to be certified by engineers, slowing down the inquiry, city officials said. The investigation could ultimately take months or perhaps years. Additionally, the state Department of Environmental Protection said they have concerns about the integrity of storage tanks on site, the agency said on Tuesday. The U.S. Chemical Safety Board is also investigating the incident, according to Reuters.
While none of this will make much news outside of Philly, what will impact all East Coast drivers is that gasoline futures rose as much as 5.4% on Wednesday to $1.9787 a gallon, the highest since May 23. The front month price was at $1.945 early on Wednesday.
Futures are up 8.9% since Thursday’s close.
NY Gasoline prices have surged back into a premium over US Gulf Gasoline…
All of which will drag, as always with a lag, the price of gas at the pump notably higher…
The rally in U.S. gasoline futures has pushed U.S. gasoline prices above European and Asian markets, raising the prospects for US imports. According to Matthew Chew, oil analyst at IHS Markit, “chances are that (the wider price spread) could open up the arbs between U.S. Gulf/Europe and [the East Coast] PADD 1.”
When compared to a similar point in time, Millennials are deeper in debt than any other generation that has come before them. And the biggest reason why they are in so much debt may surprise you.
We’ll get to that in a minute, but first let’s talk about the giant mountain of debt that Millennials have accumulated. According to the New York Fed, the total amount of debt that Millennials are carrying has risen by a whopping 22 percent in just the last five years…
New findings from the New York Federal Reserve reveal that millennials have now racked up over US$1 trillion of debt.
This troubling amount of debt, an increase of over 22% in just five years, is more than any other generation in history. This situation may leave you wondering how millennials ended up in such a sorry state.
Many young adults are absolutely drowning in debt, but the composition of that debt is quite different when compared to previous generations at a similar point in time.
Mortgage debt and credit card debt levels are far lower for Millennials, but the level of student loan debt is far, far higher…
While the debt levels accumulated by millennials eclipse those of the previous generation, Generation X, at a similar point in time, the complexion of the debt is very different.
According to a 2018 report from the St. Louis Federal Reserve Bank, mortgage debt is about 15% lower for millennials and credit card debt among millennials was about two-thirds that of Gen X.
However, student loan debt was over 300% greater.
Over the last 10 years, the total amount of student loan debt in the United States has more than doubled.
It is an absolutely enormous financial problem, and there doesn’t seem to be an easy solution. Some politicians on the left are pledging to make college education “free” in the United States, but they never seem to explain who is going to pay for that.
But what everyone can agree on is that student loan debt levels are wildly out of control. The following statistics come from Forbes…
The latest student loan debt statistics for 2019 show how serious the student loan debt crisis has become for borrowers across all demographics and age groups. There are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. alone. Student loan debt is now the second highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans. Borrowers in the Class of 2017, on average, owe $28,650, according to the Institute for College Access and Success.
What makes all of this even more depressing is the fact that the quality of “higher education” in the U.S. has gone down the toilet in recent years. For much more on this, please see my recent article entitled “50 Actual College Course Titles That Prove That America’s Universities Are Training Our College Students To Be Socialists”.
Our colleges and universities are not adequately preparing our young people for their future careers, but they are burdening them with gigantic financial obligations that will haunt many of them for decades to come.
We have a deeply broken system, and we desperately need a complete and total overhaul of our system of higher education.
Due to the fact that so many of them are swamped by student loan debt, the homeownership rate for Millennials is much, much lower than the homeownership rate for the generations that immediately preceded them. The following comes from CNBC…
The homeownership rate for those under 35 was just 36.5 percent in the last quarter of 2018, compared with 61 percent for those aged 35 to 44, and 70 percent for those aged 45 to 54, according to the U.S. Census. The millennial homeownership rate actually dropped in the fourth quarter compared with the third quarter, but was unchanged year over year.
This is one of the big reasons why “Housing Bubble 2” is beginning to burst. There are not enough Millennials buying homes, and it looks like things could be even worse for Generation Z.
If you are a young adult, I would encourage you to limit your exposure to student loan debt as much as possible, because the debt that you accumulate while in school can have very serious long-term implications that you may not even be considering right now.
Russia De-Dollarizes Deeper: Shifts $100 Billion To Yuan, Yen, And Euro
Russia is continuing to ramp up its efforts to move away from the American dollar (Federal Reserve Notes). The country just shifted $100 billion of its reserves to the yuan, the yen, and the euro in their ongoing effort to ditch the US Dollar.
The Central Bank of Russia has moved further away from its reliance on the United States dollar and has axed its share in the country’s foreign reserves to a historic low, transferring about $100 billion into euro, Japanese yen, and Chinese yuan according to a report by RT. The share of the U.S. dollar in Russia’s international reserves portfolio has dramatically decreased in just three months between March and June 2018. The holding decreased from 43.7 percent to a new low of 21.9 percent, according to the Central Bank’s latest quarterly report, which is issued with a six-month lag.
The money pulled from the dollar reserves was redistributed to increase the share of the euro to 32 percent and the share of Chinese yuan to 14.7 percent. Another 14.7 percent of the portfolio was invested in other currencies, including the British pound (6.3 percent), Japanese yen (4.5 percent), as well as Canadian (2.3 percent) and Australian (1 percent) dollars.
The Central Bank’s total assets in foreign currencies and gold increased by $40.4 billion from July 2017 to June 2018, reaching $458.1 billion. –RT
Russian and others have been consistently moving away from the dollar and toward other currencies. Economic sanctions, which are losing their power as more countries move from the dollar, and trade wars seem to be fueling the dollar’s uncertainty.
Peter Schiff warns that as the supply of dollars is going to grow and grow, the demand for the American currency can fall, while the US Fed will be unable to stop the dollar’s demise. Schiff says that what is coming for Americans, is massive inflation.
“Eventually, what’s going to happen is it’s going to be the demand for those dollars is going to collapse, not the supply. And when the demand for dollars collapses, then the price of the dollar collapses. You get massive inflation. That is what is coming.”
Russia began its unprecedented dumping of U.S. Treasury bonds in April and May of last year. Russia appears to be moving on from the rise in tensions with the United States. The massive $81 billion spring sell-off coincided with the U.S.’s sanctioning of Russian businessmen, companies, and government officials. But Russia has long had plans to “beat” the U.S. when it comes to sanctions by stockpiling gold.
The Russian central bank’s First Deputy Governor Dmitry Tulin said that Moscow sees the acquisition of gold as a “100-percent guarantee from legal and political risks.”
As reported by RT, the Kremlin has openly stated that American sanctions and pressure are forcing Russia to find alternative settlement currencies to the U.S. dollar to ensure the security of the country’s economy. Other countries, such as China, India, and Iran, are also pursuing steps to challenge the greenback’s dominance in global trade.
India Begins Paying For Iranian Oil In Rupees Instead Of US Dollars
Three months ago, in Mid-October, Subhash Chandra Garg, economic affairs secretary at India’s finance ministry, said that India still hasn’t worked out yet a payment system for continued purchases of crude oil from Iran, just before receiving a waiver to continue importing oil from Iran in its capacity as Iran’s second largest oil client after China.
That took place amid reports that India had discussed ditching the U.S. dollar in its trading of oil with Russia, Venezuela, and Iran, instead settling the trade either in Indian rupees or under a barter agreement. One thing was certain: India wanted to keep importing oil from Iran, because Tehran offers generous discounts and incentives for Indian buyers at a time when the Indian government is struggling with higher oil prices and a weakening local currency that additionally weighs on its oil import bill.
Fast forward to the new year when we learn that India has found a solution to the problem, and has begun paying Iran for oil in rupees, a senior bank official said on Tuesday, the first such payments since the United States imposed new sanctions against Tehran in November. An industry source told Reuters that India’s top refiner Indian Oil Corp and Mangalore Refinery & Petrochemicals have made payments for Iranian oil imports.
To be sure, India, the world’s third biggest oil importer, has wanted to continue buying oil from Iran as it offers free shipping and an extended credit period, while Iran will use the rupee funds to mostly pay for imports from India.
“Today we received a good amount from some oil companies,” Charan Singh, executive director at state-owned UCO Bank told Reuters. He did not disclose the names of refiners or how much had been deposited.
Hinting that it wants to extend oil trade with Tehran, New Delhi recently issued a notification exempting payments to the National Iranian Oil Company (NIOC) for crude oil imports from steep withholding taxes, enabling refiners to clear an estimated $1.5 billion in dues.
Meanwhile, in lieu of transacting in US Dollars, Iran is devising payment mechanisms including barter with trading partners like India, China and Russia following a delay in the setting up of a European Union-led special purpose vehicle to facilitate trade with Tehran, its foreign minister Javad Zarif said earlier on Tuesday.
As Reuters notes, in the previous round of U.S. sanctions, India settled 45% of oil payments in rupees and the remainder in euros but this time it has signed deal with Iran to make all payments in rupees as New Delhi wanted to fix its trade balance with Tehran. Case in point: Indian imports from Iran totaled about $11 billion between April and November, with oil accounting for about 90 percent.
Singh said Indian refiners had previously made payments to 15 banks, but they will now be making deposits into the accounts of only 9 Iranian lenders as one had since closed and the U.S has imposed secondary sanctions on five others.
It’s all about control… Robert Fripp
Generation Z is already learning from the millennial generation’s mistakes…
(LibertyNation) For years, millennials have scoffed at the notion of fixing someone else’s toilet, installing elevators, or cleaning a patient’s teeth. Instead, they wanted to get educated in lesbian dance theory, gender studies, and how white people and western civilization destroyed the world. As a result, student loan debt has surpassed the $1 trillion mark, the youth unemployment rate hovers around 9%, and the most tech-savvy and educated generation is delaying adulthood.
But their generational successors are not making the same mistakes, choosing to put in a good day’s work rather than whining on Twitter about how “problematic” the TV series Seinfeld was. It appears that young folks are paying attention to the wisdom of Mike Rowe, the American television host who has highlighted the benefits and importance of trade schools and blue-collar work – he has also made headlines for poking fun at man-babies and so-called Starbucks shelters.
Will Generation Z become the laughing stock of the world, too? Unlikely.
Z Is Abandoning University
A new report from VICE Magazine suggests that Generation Z – those born around the late-1990s and early-2000s – are turning to trade schools, not university and college, for careers. Ostensibly, a growing number of younger students are seeing stable paychecks in in-demand fields without having to collapse under the weight of crushing debt.
Because Gen Zers want to learn now and work now, they are abandoning the traditional four-year route, a somewhat precocious response to the ever-evolving global economy.
Cosmetologist, petroleum technician, and respiratory therapist are just some of the positions that this generation of selfies, Snapchat, and emoticons are taking. And this is an encouraging development, considering that participation in career and technical education (CTE) has steadily declined since 1990.
David Abreu, a teacher at Queens Technical High School, told a class of young whippersnappers at the start of the semester:
“When you go out there, there’s no reason why anyone should be sitting on mommy’s couch, eating cereal, and watching cartoons or a telenovela. There’s tons of construction, and there’s not enough people. So they’re hiring from outside of New York City. They’re getting people from the Midwest. I love the accents, but they don’t have enough of you.”
While students feel the pressure of attaining a four-year degree in a subject that offers fewer employment opportunities, the blue-collar jobs are out there to be filled. It is estimated that more than one-third of businesses in construction, manufacturing, and financial services are unable to fill open jobs, mainly because of a skills shortage and a paucity of qualifications.
This could change in the coming years.
The Future Of College
Over the last decade or so, the college experience has turned into a circus. At Evergreen College, the inmates ran the asylum. The University of Missouri staff requested “some muscle over here” to suppress journalists. Harvard University has turned into a politically correct institution. What do all these places of higher learning have in common? They’re losing money, whether it’s from fewer donations or tumbling enrollment.
Not only are these places of higher learning metastasizing into leftist indoctrination centers, their rates for graduates obtaining employment are putrid. And parents and students are realizing this.
With the trend of Gen Zers embracing the trades, the future of post-secondary education might be different. Since colleges need to remain competitive in the sector, they will have to offer alternative programs and eliminate eclectic courses, and the administration will be required to justify their utility.
A pupil seeking out a STEM education will not be subjected to the inane ramblings of an ecofeminism teacher or the asinine curriculum of a queer theory course.
Moreover, colleges could no longer afford to spend chunks of their budgets on opulent settings. A student interested in the trades is unlikely to be attracted to in-house day spas, luxury dorms, and exorbitant gyms. They want the skills, the tools, and the training to garner a high-paying career without sacrificing 15 years’ worth of earnings just so they could enjoy lobster for lunch twice a week.
Millennials are typically the butt of jokes, known for texting in the middle of job interviews, demanding complicated Starbucks beverages, and ignoring their friends at the restaurant. Perhaps Generation Z doesn’t want to experience the same humiliation and stereotypes. This could explain why they are dismissing the millennial trends and instead adopting common sense, conservatism, tradition, and anything else that is contrary to those who need to be coddled.
The next 20 years should be fascinating.
In 2039, Ryder, who prefers the pronoun “xe,” is employed as a barista, a position he claims is temporary to pay off his student debt. He lives on his friend’s sofa, still protests former President Donald Trump, and spends his disposable income on tattoos. In the same year, Frank operates an HVAC business, owns his home without a mortgage, and has a wife and three children who enjoy their summer weekends at the ballpark with the grandparents.
One went to college for feminist philosophy, the other went to trade school. You decide who.
(TheLastRefuge) The words from Peter Navarro will come as no surprise to any CTH reader who is fully engaged and reviewing the multi-trillion stakes, within the Globalist (Wall St-vs- Nationalist (Main Street) confrontation.
For several decades Wall Street, through lobbying arms such as the U.S. Chamber of Commerce (Tom Donohue), has structurally opposed Main Street economic policy in order to inflate profits and hold power – “The Big Club”. This manipulative intent is really the epicenter of the corruption within the DC swamp.
U.S. National Trade Council Director Peter Navarro discusses how Wall Street bankers and hedge-fund managers are attempting to influence U.S.-China trade talks. He speaks at the Center for Strategic and International Studies in Washington, D.C.
This article was built around the following short news clip…
Originally outlined a year ago. At the heart of the professional/political opposition the issue is money; there are trillions at stake.
President Trump’s MAGAnomic trade and foreign policy agenda is jaw-dropping in scale, scope and consequence. There are multiple simultaneous aspects to each policy objective; however, many have been visible for a long time – some even before the election victory in November ’16.
If we get too far in the weeds the larger picture is lost. CTH objective is to continue pointing focus toward the larger horizon, and then at specific inflection points to dive into the topic and explain how each moment is connected to the larger strategy.
If you understand the basic elements behind the new dimension in American economics, you already understand how three decades of DC legislative and regulatory policy was structured to benefit Wall Street and not Main Street. The intentional shift in fiscal policy is what created the distance between two entirely divergent economic engines.
REMEMBER […] there had to be a point where the value of the second economy (Wall Street) surpassed the value of the first economy (Main Street).
Investments, and the bets therein, needed to expand outside of the USA. hence, globalist investing.
However, a second more consequential aspect happened simultaneously. The politicians became more valuable to the Wall Street team than the Main Street team; and Wall Street had deeper pockets because their economy was now larger.
As a consequence Wall Street started funding political candidates and asking for legislation that benefited their interests.
When Main Street was purchasing the legislative influence the outcomes were -generally speaking- beneficial to Main Street, and by direct attachment those outcomes also benefited the average American inside the real economy.
When Wall Street began purchasing the legislative influence, the outcomes therein became beneficial to Wall Street. Those benefits are detached from improving the livelihoods of main street Americans because the benefits are “global”. Global financial interests, multinational investment interests -and corporations therein- became the primary filter through which the DC legislative outcomes were considered.
There is a natural disconnect. (more)
As an outcome of national financial policy blending commercial banking with institutional investment banking something happened on Wall Street that few understand. If we take the time to understand what happened we can understand why the Stock Market grew and what risks exist today as the monetary policy is reversed to benefit Main Street.
President Trump and Treasury Secretary Mnuchin have already begun assembling and delivering a new banking system.
Instead of attempting to put Glass-Stegal regulations back into massive banking systems, the Trump administration is creating a parallel financial system of less-regulated small commercial banks, credit unions and traditional lenders who can operate to the benefit of Main Street without the burdensome regulation of the mega-banks and multinationals. This really is one of the more brilliant solutions to work around a uniquely American economic problem.
♦ When U.S. banks were allowed to merge their investment divisions with their commercial banking operations (the removal of Glass Stegal) something changed on Wall Street.
Companies who are evaluated based on their financial results, profits and losses, remained in their traditional role as traded stocks on the U.S. Stock Market and were evaluated accordingly. However, over time investment instruments -which are secondary to actual company results- created a sub-set within Wall Street that detached from actual bottom line company results.
The resulting secondary financial market system was essentially ‘investment markets’. Both ordinary company stocks and the investment market stocks operate on the same stock exchanges. But the underlying valuation is tied to entirely different metrics.
Financial products were developed (as investment instruments) that are essentially wagers or bets on the outcomes of actual companies traded on Wall Street. Those bets/wagers form the hedge markets and are [essentially] people trading on expectations of performance. The “derivatives market” is the ‘betting system’.
♦Ford Motor Company (only chosen as a commonly known entity) has a stock valuation based on their actual company performance in the market of manufacturing and consumer purchasing of their product. However, there can be thousands of financial instruments wagering on the actual outcome of their performance.
There are two initial bets on these outcomes that form the basis for Hedge-fund activity. Bet ‘A’ that Ford hits a profit number, or bet ‘B’ that they don’t. There are financial instruments created to place each wager. [The wagers form the derivatives] But it doesn’t stop there.
Additionally, more financial products are created that bet on the outcomes of the A/B bets. A secondary financial product might find two sides betting on both A outcome and B outcome.
Party C bets the “A” bet is accurate, and party D bets against the A bet. Party E bets the “B” bet is accurate, and party F bets against the B. If it stopped there we would only have six total participants. But it doesn’t stop there, it goes on and on and on…
The outcome of the bets forms the basis for the tenuous investment markets. The important part to understand is that the investment funds are not necessarily attached to the original company stock, they are now attached to the outcome of bet(s). Hence an inherent disconnect is created.
Subsequently, if the actual stock doesn’t meet it’s expected P-n-L outcome (if the company actually doesn’t do well), and if the financial investment was betting against the outcome, the value of the investment actually goes up. The company performance and the investment bets on the outcome of that performance are two entirely different aspects of the stock market. [Hence two metrics.]
♦Understanding the disconnect between an actual company on the stock market, and the bets for and against that company stock, helps to understand what can happen when fiscal policy is geared toward the underlying company (Main Street MAGAnomics), and not toward the bets therein (Investment Class).
The U.S. stock markets’ overall value can increase with Main Street policy, and yet the investment class can simultaneously decrease in value even though the company(ies) in the stock market is/are doing better. This detachment is critical to understand because the ‘real economy’ is based on the company, the ‘paper economy’ is based on the financial investment instruments betting on the company.
Trillions can be lost in investment instruments, and yet the overall stock market -as valued by company operations/profits- can increase.
Conversely, there are now classes of companies on the U.S. stock exchange that never make a dime in profit, yet the value of the company increases. This dynamic is possible because the financial investment bets are not connected to the bottom line profit. (Examples include Tesla Motors, Amazon and a host of internet stocks like Facebook and Twitter.) It is this investment group of companies that stands to lose the most if/when the underlying system of betting on them stops or slows.
Specifically due to most recent U.S. fiscal policy, modern multinational banks, including all of the investment products therein, are more closely attached to this investment system on Wall Street. It stands to reason they are at greater risk of financial losses overall with a shift in fiscal policy.
That financial and economic risk is the basic reason behind Trump and Mnuchin putting a protective, secondary and parallel, banking system in place for Main Street.
Big multinational banks can suffer big losses from their investments, and yet the Main Street economy can continue growing, and have access to capital, uninterrupted.
Bottom Line: U.S. companies who have actual connection to a growing U.S. economy can succeed; based on the advantages of the new economic environment and MAGA policy, specifically in the areas of manufacturing, trade and the ancillary benefactors.
Meanwhile U.S. investment assets (multinational investment portfolios) that are disconnected from the actual results of those benefiting U.S. companies, and as a consequence also disconnected from the U.S. economic expansion, can simultaneously drop in value even though the U.S. economy is thriving.
Cato released author Chris Edwards’ study on “Tax Reform and Interstate Migration.”
The 2017 federal tax law increased the tax pain of living in a high-tax state for millions of people. Will the law induce those folks to flee to lower-tax states?
To find clues, the study looks at recent IRS data and reviews academic studies on interstate migration.
For each state, the study calculated the ratio of domestic in-migration to out-migration for 2016. States losing population have ratios of less than 1.0. States gaining population have ratios of more than 1.0. New York’s ratio is 0.65, meaning for every 100 residents that left, only 65 moved in. Florida’s ratio is 1.45, meaning that 145 households moved in for every 100 that left.
Figure 1 maps the ratios. People are generally moving out of the Northeast and Midwest to the South and West, but they are also leaving California, on net.
People move between states for many reasons, including climate, housing costs, and job opportunities. But when you look at the detailed patterns of movement, it is clear that taxes also play a role.
I divided the country into the 25 highest-tax and 25 lowest-tax states by a measure of household taxes. In 2016, almost 600,000 people moved, on net, from the former to the latter.
People are moving into low-tax New Hampshire and out of Massachusetts. Into low-tax South Dakota and out of its neighbors. Into low-tax Tennessee and out of Kentucky. And into low-tax Florida from New York, Connecticut, New Jersey, and just about every other high-tax state.
On the West Coast, California is a high-tax state, while Oregon and Washington fall just on the side of the lower-tax states.
Of the 25 highest-tax states, 24 of them had net out-migration in 2016.
Of the 25 lowest-tax states, 17 had net in-migration.
The Uncomfortable Hiatus
And so the sun seems to stand still this last day before the resumption of business-as-usual, and whatever remains of labor in this sclerotic republic takes its ease in the ominous late summer heat, and the people across this land marinate in anxious uncertainty. What can be done?
Some kind of epic national restructuring is in the works. It will either happen consciously and deliberately or it will be forced on us by circumstance. One side wants to magically reenact the 1950s; the other wants a Gnostic transhuman utopia. Neither of these is a plausible outcome. Most of the arguments ranging around them are what Jordan Peterson calls “pseudo issues.” Let’s try to take stock of what the real issues might be.
Energy: The shale oil “miracle” was a stunt enabled by supernaturally low interest rates, i.e. Federal Reserve policy. Even The New York Times said so yesterday (The Next Financial Crisis Lurks Underground). For all that, the shale oil producers still couldn’t make money at it. If interest rates go up, the industry will choke on the debt it has already accumulated and lose access to new loans. If the Fed reverses its current course — say, to rescue the stock and bond markets — then the shale oil industry has perhaps three more years before it collapses on a geological basis, maybe less. After that, we’re out of tricks. It will affect everything.
The perceived solution is to run all our stuff on electricity, with the electricity produced by other means than fossil fuels, so-called alt energy. This will only happen on the most limited basis and perhaps not at all. (And it is apart from the question of the decrepit electric grid itself.) What’s required is a political conversation about how we inhabit the landscape, how we do business, and what kind of business we do. The prospect of dismantling suburbia — or at least moving out of it — is evidently unthinkable. But it’s going to happen whether we make plans and policies, or we’re dragged kicking and screaming away from it.
Corporate tyranny: The nation is groaning under despotic corporate rule. The fragility of these operations is moving toward criticality. As with shale oil, they depend largely on dishonest financial legerdemain. They are also threatened by the crack-up of globalism, and its 12,000-mile supply lines, now well underway. Get ready for business at a much smaller scale.
Hard as this sounds, it presents great opportunities for making Americans useful again, that is, giving them something to do, a meaningful place in society, and livelihoods. The implosion of national chain retail is already underway. Amazon is not the answer, because each Amazon sales item requires a separate truck trip to its destination, and that just doesn’t square with our energy predicament. We’ve got to rebuild main street economies and the layers of local and regional distribution that support them. That’s where many jobs and careers are.
Climate change is most immediately affecting farming. 2018 will be a year of bad harvests in many parts of the world. Agri-biz style farming, based on oil-and-gas plus bank loans is a ruinous practice, and will not continue in any case. Can we make choices and policies to promote a return to smaller scale farming with intelligent methods rather than just brute industrial force plus debt? If we don’t, a lot of people will starve to death. By the way, here is the useful work for a large number of citizens currently regarded as unemployable for one reason or another.
Pervasive racketeering rules because we allow it to, especially in education and medicine. Both are self-destructing under the weight of their own money-grubbing schemes. Both are destined to be severely downscaled. A lot of colleges will go out of business. Most college loans will never be paid back (and the derivatives based on them will blow up). We need millions of small farmers more than we need millions of communications majors with a public relations minor. It may be too late for a single-payer medical system. A collapsing oil-based industrial economy means a lack of capital, and fiscal hocus-pocus is just another form of racketeering. Medicine will have to get smaller and less complex and that means local clinic-based health care. Lots of careers there, and that is where things are going, so get ready.
Government over-reach: the leviathan state is too large, too reckless, and too corrupt. Insolvency will eventually reduce its scope and scale. Most immediately, the giant matrix of domestic spying agencies has turned on American citizens. It will resist at all costs being dismantled or even reined in. One task at hand is to prosecute the people in the Department of Justice and the FBI who ran illegal political operations in and around the 2016 election. These are agencies which use their considerable power to destroy the lives of individual citizens. Their officers must answer to grand juries.
As with everything else on the table for debate, the reach and scope of US imperial arrangements has to be reduced. It’s happening already, whether we like it or not, as geopolitical relations shift drastically and the other nations on the planet scramble for survival in a post-industrial world that will be a good deal harsher than the robotic paradise of digitally “creative” economies that the credulous expect. This country has enough to do within its own boundaries to prepare for survival without making extra trouble for itself and other people around the world. As a practical matter, this means close as many overseas bases as possible, as soon as possible.
As we get back to business tomorrow, ask yourself where you stand in the blather-storm of false issues and foolish ideas, in contrast to the things that actually matter.
“The Global Bond Curve Just Inverted”: Why JPM thinks a market Crash may be imminent
At the beginning of April, JPMorgan’s Nikolaos Panigirtzoglou pointed out something unexpected: in a time when everyone was stressing out over the upcoming inversion in the Treasury yield curve, the JPM analyst showed that the forward curve for the 1-month US OIS rate, a proxy for the Fed policy rate, had already inverted after the two-year forward point. In other words, while cash instruments had yet to officially invert, the market had already priced this move in.
One way of visualizing this inversion was by charting the front end between the 2-year and 3-year forward points of the 1-month OIS. Here, as JPM showed two months ago, a curve inversion had arisen for the first time during the first week of January, but it only lasted for two days at the time and the curve re-steepened significantly in the beginning of April.
Fast forward to today when in a follow up note, Panigirtzoglou highlights that this inversion has gotten worse over the past week following Wednesday’s hawkish FOMC meeting. As shown in the chart below which updates the 1-month OIS rate, the difference between the 3-year and the 2-year forward points has worsened, falling to a new low for the year of -5bp.
But in an unexpected development – because as a reminder we already knew that the market had priced in an inversion in the short-end of the curve – something remarkable happened last week: the entire global bond curve just inverted for the first time since just before the financial crisis erupted.
As JPM notes, while the Fed’s hawkish move was sufficient to invert the short end further, it was not the only central bank inducing flattening this past week: the ECB also pressed lower on the curve via its “dovish QE end” policy meeting this week. And as a result of this week’s broad-based flattening, the yield curve inversion has spilled over to the long end of the global government bond yield curve also.
In particular, the yield spread between the 7-10 year minus the 1-3 year maturity buckets of our global government bond index (JPM GBI Broad bond index) shifted to negative territory this week for the first time since 2007. This can be seen in Figure 2.
But how is it possible that the global government bond yield curve can be inverted when most developed 2s10s cash curves are still at least a little steep? After all, as seen below, After all, the flattest 2s10s government yield curve is in Japan at +17bp and although the 2s10s US government curve – shown below – has been collapsing, it is still 35bp away from inversion.
The answer is in the unequal weighing of US duration in the JPM global bond index: specifically, as Panigirtzoglou explains, the US has a much higher weight in the 1-3 year bucket, around 50%, than in the 7-10 year bucket, where it has a weight of only 25%.
This is because in terms of the relative stocks of government bonds globally, there are a lot more short-dated US government bonds relative to longer-dated ones as the US has lagged other countries in terms of the duration expansion trend that took place over the past ten years.
This is shown in Figure 3 which shows the average duration of various countries’ government bond indices over time. It is very clear that the US has failed to follow other countries in the past decade’s duration expansion race and as a result there are currently a lot more non-US government bonds in longer-dated buckets which are typically lower yielding than the US. And a lot more US government bonds in short-dated buckets which are typically higher yielding.
What are the practical implications? Well, in a word, global investors – those for whom Treasury flows are fungible and have exposure to the entire world’s “safe securities” – now find themselves in inversion.
In other words, with the Fed having pushed the yield on short dated 1-3 year US government bonds to above 2.5%, global bond investors who, by construction, hold more US government bonds in the 1-3 year bucket and more non-US government bonds in the longer-dated buckets, finds themselves with a situation where extending maturities at a global level provides no extra yield compensation.
And the punchline:
This means that while at the local level bond investors are still demanding a premium for longer-dated bonds, at an aggregate level – abstracting from segmentation and currency hedging issues – bond investors globally are no longer demanding such a premium.
Needless to say, although JPM says it anyway, “this is rather unusual as can be seen in Figure 2.”
As for the timing, well it’s troubling to say the least: it did so just before the last two bubbles burst. In fact, the last time the 7-10y minus 1-3y yield spread of JPM’s GBI Broad bond index turned negative was in 2007 ahead of an equity correction and recession at the time. Before then it had turned very negative in late 1990s also, after the 1997/1998 EM crisis but also in 1999 ahead of a burst in the equity bubble and a reversal of Fed policy.
And if that wasn’t enough, here are some especially ominous parting thoughts from the JPM strategist:
In other words, in normal times, bond investors demand a premium to hold longer-dated bonds and to tie their money for a long period of time vs. investing in lower risk short-dated bonds. But when investors have little confidence in the trajectory of the economy or they think monetary policy tightening is overdone or they see a high risk of a correction in risky markets such as equities, they may prefer to buy longer-dated government bonds as a hedge even though they receive a lower yield than short-dated bonds. This is perhaps why empirical literature found that the slope of the yield curve is such a good predictor of economic slowdowns and/or equity market corrections.
In other words, contrary to all those awed but naive interpretations of the short-term market reaction invoked by Powell or Draghi, according to the market, not only the Fed but the ECB engaged in consecutive policy mistakes. And, as JPM confirms, “this week’s central bank meetings exacerbated this flattening trend.”
As a result the yield curve inversion is no longer confined to the front-end of the US curve, but has also emerged at the longer end of the global government bond yield curve.
What this means is that a decade after the last such inversion, bond investors globally no longer require extra premium for holding longer-dated bonds vs short-dated bonds, something that happens rarely, e.g. when investors have little confidence in the trajectory of the economy, or they think monetary policy tightening is overdone or they see a high risk of a correction in risky markets such as equities.
In 1923, a young Jewish immigrant from a small town in modern-day Ukraine founded a candy company in Brooklyn, New York that he called “Just Born”.
His name was Samuel Bernstein. And if you enjoy chocolate sprinkles or the hard, chocolate coating around ice cream bars, you can thank Bernstein– he invented them.
Nearly 100 years later, the company is still a family-owned business, producing some well-known brands like Peeps and Hot Tamales.
But business conditions in the Land of the Free have changed quite dramatically since Samuel Bernstein founded the company in 1923.
The costs to manufacture in the United States are substantial. And business regulations can be outright debilitating.
One of the major challenges facing Just Born these days is its gargantuan, underfunded pension fund.
Like a lot of large businesses, Just Born contributes to a pension fund that pays retirement benefits to its employees.
And in 2015, Just Born’s pension fund was deemed to be in “critical status”, prompting management to negotiate a solution with the employee union.
The union simply demanded that Just Born plug the funding gap, as if the company could merely write a check and make the problem go away.
Management pushed back, explaining that the pension gap could bankrupt the company.
And as an alternative, the company proposed to keep all existing retirees and current employees in the old pension plan, while putting all new employees into a different retirement plan.
It seemed like a reasonable solution that would maintain all the benefits that had been promised to existing employees, while still fixing the company’s long-term financial problem.
But the union refused, and the case went to court.
Two weeks ago the judges ruled… and the union won. Just Born would have no choice but to maintain a pension plan that puts the company at serious risk.
It’s literally textbook insanity. The court (and the union) both want to continue the same pension plan and the same terms… but they expect different results.
It’s as if they think the entire situation will somehow magically fix itself.
Those of us living on Planet Earth can probably figure out what’s coming next.
In a few years the fund will be completely insolvent.
And this company, which employs hundreds upon hundreds of well-paid factory workers in the United States, will probably have to start manufacturing overseas in order to save costs.
Honestly it’s some kind of miracle that Just Born is still producing in the US. The owners could have relocated overseas years ago and pocketed tens of millions of dollars in labor and tax savings.
But they didn’t. You’d think the union would have acknowledged that, and tried to find a way to work WITH the company to benefit everyone in the long-term.
Yet thanks to their idiotic union, these workers are stuck with an insolvent pension fund and zero job security.
Now, here’s the really bizarre part: Just Born contributes to something called a “Multi-Employer Pension Fund”.
In other words, it’s not Just Born’s pension fund. They don’t own it. They don’t manage it. And they’re just one of the several large companies (typically within the candy industry) who contribute to it.
So this raises an important question: WHO manages the pension fund?
Why… the UNION, of course.
The multi-employer pension fund that Just Born contributes to is called the Bakery and Confectionery Union and Industry International Pension Fund.
This is a UNION pension fund. It was founded by the Union. And the President of the Union even serves as chairman of the fund.
This is truly incredible.
So basically the union mismanaged its own pension fund, and then legally forced the company into an unsustainable financial position that could cost all the employees their jobs. It’s genius!
Just Born, of course, is just one of countless other businesses that faces a looming pension shortfall.
General Electric has a pension fund that’s underfunded by a whopping $31 billion.
Bloomberg reported last summer that the biggest corporations in the United States collectively have a $382 billion pension shortfall.
Not to worry, though. The federal government long ago set up an agency called the Pension Benefit Guarantee Corporation to bail out insolvent pension funds.
(It’s sort of like an FDIC for pension funds.)
Problem is– the Pension Benefit Guarantee Corporation is itself insolvent and in need of a bailout.
According to the PBGC’s own financial statements, they have a “net financial position” of MINUS $75 billion, and they lost $1.3 billion last year alone.
The federal government isn’t really in a position to help; according to the Treasury Department’s financial statements, Social Security and Medicare have a combined shortfall exceeding $40 TRILLION.
And public pension funds across the 50 states have an estimated combined shortfall of $1.4 TRILLION, according to a 2016 report by the Pew Charitable Trusts.
It doesn’t take a rocket scientist to see what’s coming.
Solvent, well-funded pensions and state/national retirement programs are as rare as mythical unicorns.
Nearly all of them have terminal problems and will likely become insolvent (if they’re not already).
The unions are driving their own pensions into the ground; and the government has ZERO bandwidth to bail anyone out, least of all itself.
So if you’re still more than two decades out from retirement, you can forget about any of these programs being there for you as advertised.
Millennials, the largest and most significant generation for the US labor market, came of age in the era of broken central bank policies, leading to the greatest wealth, income and inequality gap in recent history. While baby boomers promised millennials the world through (expensive) college degrees, this generation discovered that massive student loans coupled with a deteriorating work environment had turned them into permanent debt and rent slaves.
And now, according to a new Axios/Survey Monkey poll, millennials are getting angry, and starting to point fingers and cast blame, with a majority accusing baby boomers of not just making things difficult for them, but, of “ruining their lives.”
The survey found 51% of millennials (18 to 34-year-olds) blame baby boomers (51 to 69-year-olds) for making a raft of poor decisions since the 1980s, that have contributed to a weak political and economic environment; only 13% said the boomers made things better. Gen Xers was not satisfied with the pesky boomers, either; as 42% of them have blamed their life’s troubles on the boomers. Most amusingly, upon self-reflection, 30% of boomers agreed that their generation’s policies had made things worse, while only 32% said they had made it better, and 34% answered it made no difference.
When asked on how to improve today’s economic and political environment, millennials had several modest proposals:
- “Remove all old government officials and term limits for the House and Congress,” a 34-year-old male Republican said.
- A number said “Impeach Trump” and “vote.”
- “Sleep more because you will be less sensitive to negative emotions,” said a 22-year-old female Democrat.
- Axios also said millennials have little confidence in their fiscal responsibility than boomers: 56 percent of millennials said they are “extremely” or “very” efficient in wealth preservation techniques, compared with 80 percent of those over 70-years old.
While the economy has entered its late-cycle phase, the dangerous rift is growing between the millennials and boomers, each wrestling for a smaller pool of jobs and shrinking government handouts. The inter-generational conflict will only escalate due to the historic accumulation of debt, and unprecedented shifts in demographics and automation, which will only accelerate into the 2020s.
But the punchline is that if Millennials loathe Boomers now when the economy is still doing relatively well thanks to a decade of central planning and trillions in liquidity, one can only imagine how delighted they will be when the next recession, or rather depression, hits.
Today, roughly one in five women in the U.S. doesn’t have children. Thanks in part to this decline in birthrate, for the first time in U.S. history, there may soon be more elderly people than children.
Based on trends in costs, it’s evident why many families are choosing to have fewer children — or in some cases, no children at all.
The cost of having children in the U.S. has grown exponentially since the 1960s, when the government first started collecting data on childhood expenditures. Between 2000 and 2010, the cost shot up by 40%.
As of 2015, American parents spend, on average, $233,610 on child costs from birth until the age of 17, not including college. This number covers everything from housing and food to child care and transportation costs. As a mother myself, as well as a sociologist who studies families, I have experienced firsthand the unexpected costs associated with having a child.
This spike in costs has broad implications, affecting everything from demographic trends and human capital to family consumption.
Labor and delivery
The overall costs of labor and delivery vary from state to state.
Expenses for a delivery can range from $3,000 to upward of $37,000 per child for a normal vaginal delivery and from $8,000 to $70,000 if a C-section or special care is needed.
These costs are often a result of separate fees charged for each individual treatment. Other factors include hospital ownership, market competitiveness and geographical location.
It’s worth noting that these costs often include additional fees for ultrasounds, blood work or high-risk pregnancies.
As a result, for women who are concerned about the costs related to giving birth, it’s important to explore the average costs at their local hospitals and review their insurance plans before they decide to become pregnant.
Child care and activities
The U.S. Department of Health and Human Services deems child care affordable if no more than 10% of a family’s income is used for that purpose. However, parents currently spend 9% to 22% of their total annual income on child care, per child.
Child care has become one of the most expensive costs that a family bears. In fact, in many cities, child care can cost more than the average rent. This is particularly challenging for low-income families who often don’t make more than minimum wage.
What’s more, over the past century, Americans significantly shifted in the way that we see childhood. Whereas in the past, children often engaged in family labor, now children are protected and nurtured.
Yet children’s activities can be costly. For example, Americans families will spend on average $500 to $1,000 per season on extracurricular or sports activities for each of their children.
In fact, due to the rising costs of sports, the number of children who aren’t physically active has increased to 17.6%. Being physically inactive is even more likely for low-income children, who are three times less likely to participate than children who reside in higher-income households.
Another hidden cost associated with having a child is that of time. In my experience, many parents don’t realize how much time they will invest in their children, often at the cost of personal freedom and work expectations.
In fact, the American Time Use Survey shows that, on average, parents with children under the age of 18 spend about 1.5 hours a day on domestic and child-care responsibilities. Women spend 2.5 hours a day, while men spend roughly only one hour on these tasks.
Weighing the causes
Researchers at Pew argue that the recent decrease in birthrate has as much to do with the Great Recession in 2008 as it does with the increase of women who are not willing to sacrifice their careers for family.
This speaks to yet another cost of having children: Mothers are often pushed out of careers or “opt out,” based on high demands of balancing family and work-life balance.
Researchers have also found a growing trend of men and women who become single parents by choice. This group of parents prioritize children over marriage and often are on single incomes. That also contributes to the reduction in overall childbirth, from a financial and practical perspective.
Ultimately, the decision to have a child is a personal one. The data show that the burden of costs and the stress of family life are real. Yet despite the costs associated with having a child, many parents report overall satisfaction with their marriage and family life.
Considering the high costs of having of a child, coupled with the tension in balancing family-work life matters, states and companies are starting to invest in family support policies, parental benefits and competitive education. And individuals are creating more innovative approaches to managing family-work balance, such as a reduction in working schedules, family support and a push for more shared responsibilities within the home.
A timely book by Peter Schweizer, “Secret Empires”, explains how Chinese companies purchased U.S. politicians to gain trade advantages, aka the Beltway Swap. When you understand this process, you better understand why those same politicians today are against the Trump trade policy that is antithetical to their purchased interests.
Reminder: U.S. Chamber of Commerce President Tom Donohue is warning President Trump not to take any trade action against China or he will unleash his purchased control agents within congress and financial media to destroy his presidency.
Allow me to re-emphasize:
All opposition to President Trump stems from the underlying financial and economic policy. All opposition is about money!
When you ask the “why” question five times you end up discovering the financial motive for all opposition. It doesn’t matter who the group is; the opposition is ultimately about money. There are trillions at stake.
Donohue takes-in hundreds of millions in payments from multinational corporations who hold a vested interest in keeping the U.S. manufacturing economy subservient to China. The U.S. CoC then turns those corporate funds into lobbyist payments to DC politicians for legislative action that benefits their Chinese trade deals. The U.S. Chamber of Commerce is the #1 lobbyist in DC; there are trillions at stake.
Wall Street’s famous CONservative mouthpieces then take their cues from Donohue and decry any Trump trade policy that might impact their multinational benefactors. They hide behind catch phrases like “free trade”, or “free markets”. However, what they are really hiding is the truth, there is no free market – it is a controlled market. It’s a circle of trade and economic propaganda driven by the most well known guests that appear on Fox News. Ben Shapiro is one such example; there are hundreds more.
WASHINGTON (Reuters)– The head of the most influential U.S. business lobbying group warned the Trump administration that unilateral tariffs on Chinese goods could lead to a destructive trade war that will hurt American consumers and U.S. economic growth.
U.S. Chamber of Commerce President Thomas Donohue said in a statement on Thursday that such tariffs, associated with a probe of China’s intellectual property practices, would be “damaging taxes on American consumers.”
His comments came after White House trade adviser Peter Navarro said that Trump would in coming weeks get options to address China’s “theft and forced transfer” of American intellectual property as part of the investigation under Section 301 of the U.S. Trade Act of 1974.
Reuters reported on Tuesday that Trump was considering tariffs on up to $60 billion worth of Chinese information technology, telecommunications and consumer products, along with U.S. investment restrictions for Chinese companies.
Donohue said the Trump administration was right to focus on the negative economic impact of China’s industrial policies and unfair trade practices, but said tariffs were the wrong approach to dealing with these.
“Tariffs of $30 billion a year would wipe out over a third of the savings American families received from the doubling of the standard deduction in tax reform,” Donohue said. “If the tariffs reach $60 billion, which has been rumored, the impact would be even more devastating.”
He urged the administration not to proceed with such a plan.
“Tariffs could lead to a destructive trade war with serious consequences for U.S. economic growth and job creation,” hurting consumers, businesses, farmers and ranchers.
In Beijing, Chinese foreign ministry spokesman Lu Kang said Donohue’s comments were correct, adding that recently more and more American intellectuals had made their rational voices heard. (read more)
Everyone admits the past 40+ years of U.S. trade deals have resulted in the massive export of U.S. wealth via jobs and manufacturing gains within other nations. The financial beneficiaries of those prior trade positions were: Wall Street, multinational corporations and multinational banks.
The losers of all prior trade priorities was the U.S. middle-class. This point is inarguable, just look around. Stop the nonsense and quit listening to those who control the markets.
So ask yourself, friends and family this very important question:
If prior U.S. trade policies resulted in the export and redistribution of U.S. wealth… What happens when you reverse the process?
In the answer to that question you discover the opposition to U.S. President Trump.
When Main Street economic principles are applied Wall Street will initially lose. There’s no way for this not to happen. Most of Wall Street is built on the Multinational platform of economic globalism. Weaken the grip of the multinational corporations and financial interests on the U.S. economy and Wall Street will drop… this is not difficult to predict. This is also necessary.
For 8 years, we took every opportunity to point out that under Barack Obama’s administration, US debt was rising at a alarmingly rapid rate, having nearly doubled, surging by $9.3 trillion during Obama’s 8 years. It now appears that the trajectory of US debt under the Trump administration will be no different, and in fact based on Trump’s ambitious fiscal spending visions, may rise even faster than it did under Obama.
We note this because as of close of Friday, the US Treasury reported that total US debt has risen above $21 trillion for the first time; or $21,031,067,004,766.25 to be precise.
Putting this in context, total US debt has now risen by over $1 trillion in Trump’s first year… and the real spending hasn’t even begun yet.
What is amusing is that Trump – who has a tweet for every occasion – and who no longer even pretends to care about the unsustainability of US spending was extremely proud as recently as a year ago by how little debt has increased during his term.
We doubt today’s milestone will be celebrated on Trump’s twitter account.
And while some can argue – especially adherents of the socialist Magic Money Tree, or MMT, theory – that there is no reason why the exponential debt increase can’t continue indefinitely…
… one can counter with the following chart from Goldman, which shows that if one assumes a blended interest rate of roughly 3.5% as the Fed does, and keeps America’s debt/GDP ratio constant, in a few years the US will be in what Goldman dubbed “uncharted territory” and warned that “the continued growth of public debt raises eventual sustainability questions if left unchecked.”
The bad news, however, is that debt/GDP will not be constant, as the CBO recently forecast in what was actually an overly optimistic prediction.
I think we’ve figured out why President Trump is doing the Steel and Aluminum tariffs ahead of the NAFTA withdrawal. Perhaps, the wolverine administration is using Steel and Aluminum to draw attention to the NAFTA fatal flaw.
Earlier today Canadian Foreign Minister Chrystia Freeland stated:
“Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers,” Foreign Minister Chrystia Freeland said in a statement, calling any trade restrictions“absolutely unacceptable.” (link)
The key word in that statement from Freeland is “products”. Why? because Canada doesn’t make raw Steel. (Top 40 List) The Canadians, like the Mexicans, import their raw steel from China. Canada then fabricates products from the Chinese steel. This nuanced point is almost always lost on people who discuss trade. This point of origination is also the fatal flaw within NAFTA.
In essence Canada is a brokerage for Chinese manufactured material, and NAFTA is the access trade-door exploited by China for entry into the U.S. market. More on that in a moment. First watch Justin from Canada explain his country’s position. (prompted, just hit play):
See, that verbal parseltongue twisting is what happens when you attempt to walk the precarious fine-line of talking points on trade. Canada doesn’t manufacture steel, they purchase steel and manufacture ‘products’. A considerable difference.
Now, here’s where I think President Trump is using the steel example to highlight the NAFTA flaw and awaken people to the larger hidden issues within the heavily manipulated North American Free Trade Agreement.
There’s always that vocal group of GOPe Wall Street defenders, the professional political and purchased republicans, who attempt to hide the NAFTA flaw. So for those who are dismissive, and for the purpose of intellectual honesty, allow me to introduce the example of Chinese Billionaire Mr. Liu Zhongtian.
Mr. Liu Zhongtian is one of the Chinese billionaires who are extremely skilled at exploiting the NAFTA loophole, generating profit and hiding the reality of NAFTA from the American people. Mr. Liu is not alone, he is simply one of many – Mr. Liu is also the Deputy Secretary of China’s communist party.
Mr. Liu has imported over one million metric tonnes of aluminum ingots into Mexico, that’s over 6% of the world supply, and he stores them there in order to avoid tariffs from the United States.
Chinese billionaire Liu Zohgtian uses Mexico’s NAFTA backdoor access to avoid any U.S. tariff.
2016 […] The pile, worth $2 billion and measuring one million metric tons, represents six per cent of the world’s aluminum.
It was discovered two years ago after a California aluminum executive sent a pilot over San José Iturbide, a city in central Mexico, the Wall Street Journal reported in an investigative piece Friday.
Trade representative Jeff Henderson believes Chinese billionaire Liu Zhongtian, an aluminum magnate, routed merchandise through Mexico to avoid paying US tariffs.
Liu controls China Zhongwang Holdings Ltd, the world’s second largest aluminum producer in its category. His current fortune is estimated at $3.2 billion according to Forbes.
Aluminum manufacturers receive subsidies in China. This means Chinese companies could be able to sell aluminum at a lower price than American firms.
The United States protected domestic trade by enforcing tariffs, which have to be paid when aluminum is imported.
Bringing in merchandise through Mexico would enable a Chinese manufacturer such as Zhongwang to avoid paying those tariffs. (read more)
A photograph of Mr. Liu Zhongtian’s aluminum stockpile in Mexico.
In its current form NAFTA is an exploited doorway into the coveted U.S. market. Asian economic interests, large multinational corporations, invested in Mexico and Canada as a way to work around any direct trade deals with the U.S.
By shipping parts to Mexico and/or Canada; and by deploying satellite manufacturing and assembly facilities in Canada and/or Mexico; China, Asia and to a lesser extent EU corporations exploited a loophole. Through a process of building, assembling or manufacturing their products in Mexico/Canada those foreign corporations can skirt U.S. trade tariffs and direct U.S. trade agreements. The finished foreign products entered the U.S. under NAFTA rules.
Why deal with the U.S. when you can just deal with Mexico, and use NAFTA rules to ship your product directly into the U.S. market?
This exploitative approach, a backdoor to the U.S. market, was the primary reason for massive foreign investment in Canada and Mexico; it was also the primary reason why candidate Donald Trump, now President Donald Trump, wanted to shut down that loophole and renegotiate NAFTA.
This loophole was the primary reason for U.S. manufacturers to relocate operations to Mexico. Corporations within the U.S. Auto-Sector could enhance profits by building in Mexico or Canada using parts imported from Asia/China. The labor factor was not as big a part of the overall cost consideration as cheaper parts and imported raw materials.
If you understand the reason why U.S. companies benefited from those moves, you can begin to understand if the U.S. was going to remain inside NAFTA President Trump would have remained engaged in TPP.
As soon as President Trump withdrew from TPP the problem with the Canada and Mexico loophole grew. All corporations from TPP nations would now have an option to exploit the same NAFTA loophole.
Why ship directly to the U.S., or manufacturer inside the U.S., when you could just assemble in Mexico and Canada and use NAFTA to bring your products to the ultimate goal, the massive U.S. market?
From the POTUS Trump position, NAFTA always came down to two options:
Option #1 – renegotiate the NAFTA trade agreement to eliminate the loopholes. That would require Canada and Mexico to agree to very specific rules put into the agreement by the U.S. that would remove the ability of third-party nations to exploit the current trade loophole. Essentially the U.S. rules would be structured around removing any profit motive with regard to building in Canada or Mexico and shipping into the U.S.
Canada and Mexico would have to agree to those rules; the goal of the rules would be to stop third-party nations from exploiting NAFTA. The problem in this option is the exploitation of NAFTA currently benefits Canada and Mexico. It is against their interests to remove it. Knowing it was against their interests President Trump never thought it was likely Canada or Mexico would ever agree. But he was willing to explore and find out.
Option #2 – Exit NAFTA. And subsequently deal with Canada and Mexico individually with structured trade agreements about their imports. Canada and Mexico could do as they please, but each U.S. bi-lateral trade agreement would be written with language removing the aforementioned cost-benefit-analysis to third-party countries (same as in option #1.)
All nuanced trade-sector issues put aside, the larger issue is always how third-party nations will seek to gain access to the U.S. market through Canada and Mexico. [It is the NAFTA exploitation loophole which has severely damaged the U.S. manufacturing base.]
This is not direct ‘protectionism’, it is simply smart and fair trade.
Unfortunately, the U.S. CoC, funded by massive multinational corporations, is spending hundreds of millions on lobbying congress to keep the NAFTA loophole open.
The U.S. has to look upstream, deep into the trade agreements made by Mexico and Canada with third-parties, because it is possible for other nations to skirt direct trade with the U.S. and move their products through Canada and Mexico into the U.S.
Do you see Canada or Mexico on the Steel Production List?
* * *
Closely related …
If the U.S. were to exit NAFTA (North American Free Trade Agreement), the price you pay for most foodstuff at the grocery store would drop 10% in the first quarter and likely drop 20% or more by the end of the first year. Here’s why:
Approximately a decade ago the U.S. Dept of Agriculture stopped using U.S. consumer food prices within the reported measures of inflation. The food sector joined the ranks of fuel and energy prices in no longer being measured to track inflation and backdrop Fed monetary policy. Not coincidentally this was simultaneous to U.S. consumers seeing massive inflation in the same highly consumable sector.
There are massive international corporate and financial interests who are inherently at risk from President Trump’s “America-First” economic and trade platform. Believe it or not, President Trump is up against an entire world economic establishment.
When you understand how trade works in the modern era you will understand why the agents within the system are so adamantly opposed to U.S. President Trump.
The biggest lie in modern economics, willingly spread and maintained by corporate media, is that a system of global markets still exists.
Every element of global economic trade is controlled and exploited by massive institutions, multinational banks and multinational corporations. Institutions like the World Trade Organization (WTO) and World Bank control trillions of dollars in economic activity. Underneath that economic activity there are people who hold the reigns of power over the outcomes. These individuals and groups are the stakeholders in direct opposition to principles of America-First national economics.
The modern financial constructs of these entities have been established over the course of the past three decades. When you understand how they manipulate the economic system of individual nations you begin to understand understand why they are so fundamentally opposed to President Trump.
In the Western World, separate from communist control perspectives (ie. China), “Global markets” are a modern myth; nothing more than a talking point meant to keep people satiated with sound bites they might find familiar. Global markets have been destroyed over the past three decades by multinational corporations who control the products formerly contained within global markets.
The same is true for “Commodities Markets”. The multinational trade and economic system, run by corporations and multinational banks, now controls the product outputs of independent nations. The free market economic system has been usurped by entities who create what is best described as ‘controlled markets’.
U.S. President Trump smartly understands what has taken place. Additionally he uses economic leverage as part of a broader national security policy; and to understand who opposes President Trump specifically because of the economic leverage he creates, it becomes important to understand the objectives of the global and financial elite who run and operate the institutions. The Big Club.
Understanding how trillions of trade dollars influence geopolitical policy we begin to understand the three-decade global financial construct they seek to protect.
That is, global financial exploitation of national markets.
FOUR BASIC ELEMENTS:
♦Multinational corporations purchase controlling interests in various national outputs and industries of developed industrial western nations.
♦The Multinational Corporations making the purchases are underwritten by massive global financial institutions, multinational banks.
♦The Multinational Banks and the Multinational Corporations then utilize lobbying interests to manipulate the internal political policy of the targeted nation state(s).
♦With control over the targeted national industry or interest, the multinationals then leverage export of the national asset (exfiltration) through trade agreements structured to the benefit of lesser developed nation states – where they have previously established a proactive financial footprint.
Against the backdrop of President Trump confronting China; and against the backdrop of NAFTA being renegotiated, likely to exit; and against the necessary need to support the key U.S. steel industry; revisiting the economic influences within the modern import/export dynamic will help conceptualize the issues at the heart of the matter.
There are a myriad of interests within each trade sector that make specific explanation very challenging; however, here’s the basic outline.
For three decades economic “globalism” has advanced, quickly. Everyone accepts this statement, yet few actually stop to ask who and what are behind this – and why?
Influential people with vested financial interests in the process have sold a narrative that global manufacturing, global sourcing, and global production was the inherent way of the future. The same voices claimed the American economy was consigned to become a “service-driven economy.”
What was always missed in these discussions is that advocates selling this global-economy message have a vested financial and ideological interest in convincing the information consumer it is all just a natural outcome of economic progress.
It’s not natural at all. It is a process that is entirely controlled, promoted and utilized by large conglomerates, lobbyists, purchased politicians and massive financial corporations.
Again, I’ll try to retain the larger altitude perspective without falling into the traps of the esoteric weeds. I freely admit this is tough to explain and I may not be successful.
Bulletpoint #1: ♦ Multinational corporations purchase controlling interests in various national elements of developed industrial western nations.
This is perhaps the most challenging to understand. In essence, thanks specifically to the way the World Trade Organization (WTO) was established in 1995, national companies expanded their influence into multiple nations, across a myriad of industries and economic sectors (energy, agriculture, raw earth minerals, etc.). This is the basic underpinning of national companies becoming multinational corporations.
Think of these multinational corporations as global entities now powerful enough to reach into multiple nations -simultaneously- and purchase controlling interests in a single economic commodity.
A historic reference point might be the original multinational enterprise, energy via oil production. (Exxon, Mobil, BP, etc.)
However, in the modern global world, it’s not just oil; the resource and product procurement extends to virtually every possible commodity and industry. From the very visible (wheat/corn) to the obscure (small minerals, and even flowers).
Bulletpoint #2 ♦ The Multinational Corporations making the purchases are underwritten by massive global financial institutions, multinational banks.
During the past several decades national companies merged. The largest lemon producer company in Brazil, merges with the largest lemon company in Mexico, merges with the largest lemon company in Argentina, merges with the largest lemon company in the U.S., etc. etc. National companies, formerly of one nation, become “continental” companies with control over an entire continent of nations.
…. or it could be over several continents or even the entire world market of Lemon/Widget production. These are now multinational corporations. They hold interests in specific segments (this example lemons) across a broad variety of individual nations.
National laws on Monopoly building are not the same in all nations. Most are not as structured as the U.S.A or other more developed nations (with more laws). During the acquisition phase, when encountering a highly developed nation with monopoly laws, the process of an umbrella corporation might be needed to purchase the targeted interests within a specific nation. The example of Monsanto applies here.
Bulletpoint #3 ♦ The Multinational Banks and the Multinational Corporations then utilize lobbying interests to manipulate the internal political policy of the targeted nation state(s).
With control of the majority of actual lemons the multinational corporation now holds a different set of financial values than a local farmer or national market. This is why commodities exchanges are essentially dead. In the aggregate the mercantile exchange is no longer a free or supply-based market; it is now a controlled market exploited by mega-sized multinational corporations.
Instead of the traditional ‘supply/demand’ equation determining prices, the corporations look to see what nations can afford what prices. The supply of the controlled product is then distributed to the country according to their ability to afford the price. This is essentially the bastardized and politicized function of the World Trade Organization (WTO). This is also how the corporations controlling WTO policy maximize profits.
Back to the lemons. A corporation might hold the rights to the majority of the lemon production in Brazil, Argentina and California/Florida. The price the U.S. consumer pays for the lemons is directed by the amount of inventory (distribution) the controlling corporation allows in the U.S.
If the U.S. lemon harvest is abundant, the controlling interests will export the product to keep the U.S. consumer spending at peak or optimal price. A U.S. customer might pay $2 for a lemon, a Mexican customer might pay .50¢, and a Canadian $1.25.
The bottom line issue is the national supply (in this example ‘harvest/yield’) is not driving the national price because the supply is now controlled by massive multinational corporations.
The mistake people often make is calling this a “global commodity” process. In the modern era this “global commodity” phrase is particularly nonsense.
A true global commodity is a process of individual nations harvesting/creating a similar product and bringing that product to a global market. Individual nations each independently engaged in creating a similar product.
Under modern globalism this process no longer takes place. It’s a complete fraud. Massive multinational corporations control the majority of production inside each nation and therefore control the global product market and price. It is a controlled system.
EXAMPLE: Part of the lobbying in the food industry is to advocate for the expansion of U.S. taxpayer benefits to underwrite the costs of the domestic food products they control. By lobbying DC these multinational corporations get congress and policy-makers to expand the basis of who can use EBT and SNAP benefits (state reimbursement rates).
Expanding the federal subsidy for food purchases is part of the corporate profit dynamic.
With increased taxpayer subsidies, the food price controllers can charge more domestically and export more of the product internationally. Taxes, via subsidies, go into their profit margins. The corporations then use a portion of those enhanced profits in contributions to the politicians. It’s a circle of money.
In highly developed nations this multinational corporate process requires the corporation to purchase the domestic political process (as above) with individual nations allowing the exploitation in varying degrees. As such, the corporate lobbyists pay hundreds of millions to politicians for changes in policies and regulations; one sector, one product, or one industry at a time. These are specialized lobbyists.
EXAMPLE: The Committee on Foreign Investment in the United States (CFIUS)
CFIUS is an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person (“covered transactions”), in order to determine the effect of such transactions on the national security of the United States.
CFIUS operates pursuant to section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (FINSA) (section 721) and as implemented by Executive Order 11858, as amended, and regulations at 31 C.F.R. Part 800.
The CFIUS process has been the subject of significant reforms over the past several years. These include numerous improvements in internal CFIUS procedures, enactment of FINSA in July 2007, amendment of Executive Order 11858 in January 2008, revision of the CFIUS regulations in November 2008, and publication of guidance on CFIUS’s national security considerations in December 2008 (more)
Bulletpoint #4 ♦ With control over the targeted national industry or interest, the multinationals then leverage export of the national asset (exfiltration) through trade agreements structured to the benefit of lesser developed nation states – where they have previously established a proactive financial footprint.
The process of charging the U.S. consumer more for a product, that under normal national market conditions would cost less, is a process called exfiltration of wealth. This is the basic premise, the cornerstone, behind the catch-phrase ‘globalism’.
It is never discussed.
To control the market price some contracted product may even be secured and shipped with the intent to allow it to sit idle (or rot). It’s all about controlling the price and maximizing the profit equation. To gain the same $1 profit a widget multinational might have to sell 20 widgets in El-Salvador (.25¢ each), or two widgets in the U.S. ($2.50/each).
Think of the process like the historic reference of OPEC (Oil Producing Economic Countries). Only in the modern era massive corporations are playing the role of OPEC and it’s not oil being controlled, thanks to the WTO it’s almost everything.
Again, this is highlighted in the example of taxpayers subsidizing the food sector (EBT, SNAP etc.), the corporations can charge U.S. consumers more. Ex. more beef is exported, red meat prices remain high at the grocery store, but subsidized U.S. consumers can better afford the high prices.
Of course, if you are not receiving food payment assistance (middle-class) you can’t eat the steaks because you can’t afford them. (Not accidentally, it’s the same scheme in the ObamaCare healthcare system)
Agriculturally, multinational corporate Monsanto says: ‘all your harvests are belong to us‘. Contract with us, or you lose because we can control the market price of your end product. Downside is that once you sign that contract, you agree to terms that are entirely created by the financial interests of the larger corporation; not your farm.
The multinational agriculture lobby is massive. We willingly feed the world as part of the system; but you as a grocery customer pay more per unit at the grocery store because domestic supply no longer determines domestic price.
Within the agriculture community the (feed-the-world) production export factor also drives the need for labor. Labor is a cost. The multinational corps have a vested interest in low labor costs. Ergo, open border policies. (ie. willingly purchased republicans not supporting border wall etc.).
This corrupt economic manipulation/exploitation applies over multiple sectors, and even in the sub-sector of an industry like steel. China/India purchases the raw material, coking coal, then sells the finished good (rolled steel) back to the global market at a discount. Or it could be rubber, or concrete, or plastic, or frozen chicken parts etc.
The ‘America First’ Trump-Trade Doctrine upsets the entire construct of this multinational export/control dynamic. Team Trump focus exclusively on bilateral trade deals, with specific trade agreements targeted toward individual nations (not national corporations).
‘America-First’ is also specific policy at a granular product level looking out for the national interests of the United States, U.S. workers, U.S. companies and U.S. consumers.
Under President Trump’s Trade positions, balanced and fair trade with strong regulatory control over national assets, exfiltration of U.S. national wealth is essentially stopped.
This puts many current multinational corporations, globalists who previously took a stake-hold in the U.S. economy with intention to export the wealth, in a position of holding contracted interest of an asset they can no longer exploit.
Perhaps now we understand better how massive multi-billion multinational corporations and institutions are aligned against President Trump.
♦The Modern Third Dimension in American Economics – HERE
♦The “Fed” Can’t Figure out the New Economics – HERE
♦Proof “America-First” has disconnected Main Street from Wall Street – HERE
♦Treasury Secretary Mnuchin begins creating a Parallel Banking System – HERE
♦How Trump Economic Policy is Interacting With The Stock Market – HERE
♦How Multinationals have Exported U.S. Wealth – HERE
U.S. producer prices fell in December, adding to fears over the sluggish inflation outlook, according to official data released on Thursday.
The Labor Department said that the producer price index fell 0.1% last month.
In the 12 months through December, the PPI rose 2.6%.
Economist had expected the PPI to increase by 0.2% last month and by 3.0% from a year earlier.
Economists had forecast the core PPI increasing by 0.2% last month and by 2.5% from a year earlier.
Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories.
Furthermore, when producers pay more for goods, they are more likely to pass price increases on to the consumer, so PPI could be considered a leading indicator of inflation.
The dollar remained lower against a basket of currencies on the data, with the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, down 0.4% at 91.74.
* * *
You mean currency debasement doesn’t cause inflation in a flat economy?
So, why are we paying income taxes when they can just print money?
Back in October 2016, the “millionaire, billionaire, private jet owners” of America’s elitist, liberal mega-cities (A.K.A. New York and San Francisco) celebrated the tax hikes that a Hillary Clinton presidency would have undoubtedly jammed down their throats proclaiming them to be a ‘patriotic duty’. Unfortunately, now that Trump has given them exactly what they apparently wanted…an amazing opportunity to ‘spread their wealth around”…they’re suddenly feeling a lot less patriotic.
Of course, as we’ve noted numerous times, while most people across the country and across the income spectrum will benefit from the Republican tax reform package, the folks who stand to lose are those living in high-tax states with expensive real estate as their SALT, mortgage interest and property tax deductions will suddenly be capped. And, as Bloomberg points out today, that has a lot of Wall Street Traders in New York drowning their sorrows in expensive vodka and considering a move to Florida.
One trader, sipping a Bloody Mary on a morning flight to somewhere more tropical, said he’s going to stop registering as a Republican. En route, he sent more than a dozen text messages ripping the tax bill.
A pair of hedge fund managers said the tax bill is too tilted toward corporations, rather than individuals who should get more relief.
“My clients are hard-working young professionals on Wall Street. I don’t have a lot of good news for them,” said Douglas Boneparth, a financial adviser in lower Manhattan who counsels people throughout the industry. Most are coming to terms with it. “I don’t think anyone is going to be surprised by the economic reality.”
“This provides a clear incentive for financial advisers to go independent,” said Louis Diamond of Diamond Consultants. “We’re hearing from a lot of clients on this; it’s just another reason why it makes a ton of sense, economically, to become self-employed.”
Of course, as we pointed out recently (see: Here’s An Interactive Map Of Which Housing Markets Get Hit The Most By The GOP Tax Bill), tax reform will likely be a double-whammy for wealthy bankers in New York and tech titans in San Francisco as their fancy McMansions may also take a pricing hit.
But, not everyone is furious. After all, there are still some tax goodies for New Yorkers such as a higher threshold for the alternative minimum tax, and a drop in the top marginal rate to 37% from 39.6%.
As an example, Mike Dean, a broker in New York for TP ICAP Plc, is keeping a positive attitude saying “It’s going to hurt, obviously” but he sees the higher taxes as tantamount to “making an investment in the future of the economy.”
Still others are considering a move to lower-taxed states like Florida and Texas which, as Todd Morgan, chairman of Bel Air Investment Advisors in Los Angeles notes, sounds like a great idea right to the point that you realize that actually entails uprooting your entire family and starting a whole new life in a different part of the country… something that generally doesn’t go over well with teenage kids…“If you’re already rich why would you move to another state and live a different life just to save some money on taxes? What are you going to do with the money? Buy more clothes? Eat more food?”
For all the rhetoric about above-trend US growth, one month ago UBS shattered the narrative of surging GDP by showing just one chart, which revealed that excluding contributions from energy investment, which are about to hit a brick wall now that the price of oil has peaked and is reverting lower once again, US growth for the past 2 years has been slowing.
On the other hand, things get even more complicated thanks to a chart released yesterday by UBS’ global chief economist Paul Donovan who makes a point we have repeatedly underscored over the past decade, namely that economic data is largely worthless, and any instant snapshot reveals more about the political and “goal seeking” climate of the agency releasing the “data” than about the underlying economy itself.
As Donovan shows, here are the no less than 6 answers one gets to the question of “how fast was the US growing at the start of 2015?.”
By way of context, recall that this was the quarter when the US was blanketed by deep snow, and when every “expert” was rushing to convince those who bothered to listen that the economy would suffer a sharp slowdown as a result of the weather and nothing but the weather (and yes, that included UBS). And when the number was first reported, that was indeed the case: with Q1 2015 GDP reportedly growing only 0.2%. The problem is that within just over a year, that 0.2% initial GDP print turned to -0.7%, before subsequently surging to 2% and ultimately 3.2%!
Here is the sarcastic take of UBS’ own chief economist on this GDP travesty, which is even more sarcastic – and ironic – considering his entire job is to predict the exact number associated with said travesty:
Economic data is not very precise. Economists are trying to hit a target that is moving rapidly. Economic data is being revised more often, and the revisions are larger than in the past. The following chart shows annualized US GDP growth in the first quarter of 2015.
Growth was initially reported very weak, below consensus and barely moving. Then the data was revised to show the US economy was shrinking – and shrinking a lot (the number was –0.7% annualized). Then it was revised to show the economy was shrinking a bit. Then it was revised to show the economy was growing, but a long way below trend growth.
The growth number was then revised to be basically in line with trend growth. Now, US growth at the start of 2015 is thought to be 3.2%.
So which number in the range of –0.7% to 3.2% is the economist supposed to be forecasting? An economist predicting 3.2% growth when the data was first released would have been ridiculed. According to the latest information we have, that economist would have been right.
In other words, that terrible weather which at the time was used to justify why the economy ground to a halt – when in reality it was all a function of China’s credit impulse crashing – would eventually serve as a the catalyst to grow the economy at a pace that has been recorded on just a handful of occasions in the past decade.
No wonder then economists – especially those who work at the Fed but all of them really – their predictions and their analyses have become the butt of all jokes; and by implication, no wonder traders and algos no longer respond to economic “data.”
One of the most notable events in Russia’s precious metals market calendar is the annual “Russian Bullion Market” conference. Formerly known as the Russian Bullion Awards, this conference, now in its 10th year, took place this year on Friday 24 November in Moscow. Among the speakers lined up, the most notable inclusion was probably Sergey Shvetsov, First Deputy Chairman of Russia’s central bank, the Bank of Russia.
In his speech, Shvetsov provided an update on an important development involving the Russian central bank in the worldwide gold market, and gave further insight into the continued importance of physical gold to the long term economic and strategic interests of the Russian Federation.
Firstly, in his speech Shvetsov confirmed that the BRICS group of countries are now in discussions to establish their own gold trading system. As a reminder, the 5 BRICS countries comprise the Russian Federation, China, India, South Africa and Brazil.
Four of these nations are among the world’s major gold producers, namely, China, Russia, South Africa and Brazil. Furthermore, two of these nations are the world’s two largest importers and consumers of physical gold, namely, China and Russia. So what these economies have in common is that they all major players in the global physical gold market.
Shvetsov envisages the new gold trading system evolving via bilateral connections between the BRICS member countries, and as a first step Shvetsov reaffirmed that the Bank of Russia has now signed a Memorandum of Understanding with China (see below) on developing a joint trading system for gold, and that the first implementation steps in this project will begin in 2018.
Interestingly, the Bank of Russia first deputy chairman also discounted the traditional dominance of London and Switzerland in the gold market, saying that London and the Swiss trading operations are becoming less relevant in today’s world. He also alluded to new gold pricing benchmarks arising out of this BRICS gold trading cooperation.
BRICS cooperation in the gold market, especially between Russia and China, is not exactly a surprise, because it was first announced in April 2016 by Shvetsov himself when he was on a visit to China.
At the time Shvetsov, as reported by TASS in Russian, and translated here, said:
“We (the Central Bank of the Russian Federation and the People’s Bank of China) discussed gold trading. The BRICS countries (Brazil, Russia, India, China and South Africa) are major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal. In China, gold is traded in Shanghai, and in Russia in Moscow. Our idea is to create a link between these cities so as to intensify gold trading between our markets.”
Also as a reminder, earlier this year in March, the Bank of Russia opened its first foreign representative office, choosing the location as Beijing in China. At the time, the Bank of Russia portrayed the move as a step towards greater cooperation between Russia and China on all manner of financial issues, as well as being a strategic partnership between the Bank of Russia and the People’s bank of China.
The Memorandum of Understanding on gold trading between the Bank of Russia and the People’s Bank of China that Shvetsov referred to was actually signed in September of this year when deputy governors of the two central banks jointly chaired an inter-country meeting on financial cooperation in the Russian city of Sochi, location of the 2014 Winter Olympics.
Deputy Governors of the People’s Bank of China and Bank of Russia sign Memorandum on Gold Trading, Sochi, September 2017. Photo: Bank of Russia
National Security and Financial Terrorism
At the Moscow bullion market conference last week, Shvetsov also explained that the Russian State’s continued accumulation of official gold reserves fulfills the goal of boosting the Russian Federation’s national security. Given this statement, there should really be no doubt that the Russian State views gold as both as an important monetary asset and as a strategic geopolitical asset which provides a source of wealth and monetary power to the Russian Federation independent of external financial markets and systems.
And in what could either be a complete coincidence, or a coordinated update from another branch of the Russian monetary authorities, Russian Finance Minister Anton Siluanov also appeared in public last weekend, this time on Sunday night on a discussion program on Russian TV channel “Russia 1”.
Siluanov’s discussion covered the Russian government budget and sanctions against the Russian Federation, but he also pronounced on what would happen in a situation where a foreign power attempted to seize Russian gold and foreign exchange reserves. According to Interfax, and translated here into English, Siluanov said that:
“If our gold and foreign currency reserves were ever seized, even if it was just an intention to do so, that would amount to financial terrorism. It would amount to a declaration of financial war between Russia and the party attempting to seize the assets.”
As to whether the Bank of Russia holds any of its gold abroad is debatable, because officially two-thirds of Russia’s gold is stored in a vault in Moscow, with the remaining one third stored in St Petersburg. But Silanov’s comment underlines the importance of the official gold reserves to the Russian State, and underscores why the Russian central bank is in the midst of one of the world’s largest gold accumulation exercises.
1800 Tonnes and Counting
From 2000 until the middle of 2007, the Bank of Russia held around 400 tonnes of gold in its official reserves and these holdings were relatively constant. But beginning in the third quarter 2007, the bank’s gold policy shifted to one of aggressive accumulation. By early 2011, Russian gold reserves had reached over 800 tonnes, by the end of 2014 the central bank held over 1200 tonnes, and by the end of 2016 the Russians claimed to have more than 1600 tonnes of gold.
Although the Russian Federation’s gold reserves are managed by the Bank of Russia, the central bank is under federal ownership, so the gold reserves can be viewed as belonging to the Russian Federation. It can therefore be viewed as strategic policy of the Russian Federation to have embarked on this gold accumulation strategy from late 2007, a period that coincides with the advent of the global financial market crisis.
According to latest figures, during October 2017 the Bank of Russia added 21.8 tonnes to its official gold reserves, bringing its current total gold holdings to 1801 tonnes. For the year to date, the Russian Federation, through the Bank of Russia, has now announced additions of 186 tonnes of gold to its official reserves, which is close to its target of adding 200 tonnes of gold to the reserves this year.
With the Chinese central bank still officially claiming to hold 1842 tonnes of gold in its national gold reserves, its looks like the Bank of Russia, as soon as the first quarter 2018, will have the distinction of holdings more gold than the Chinese. That is of course if the Chinese sit back and don’t announce any additions to their gold reserves themselves.
The Bank of Russia now has 1801 tonnes of gold in its official reserves
A threat to the London Gold Market
The new gold pricing benchmarks that the Bank of Russia’s Shvetsov signalled may evolve as part of a BRICS gold trading system are particularly interesting. Given that the BRICS members are all either large producers or consumers of gold, or both, it would seem likely that the gold trading system itself will be one of trading physical gold. Therefore the gold pricing benchmarks from such a system would be based on physical gold transactions, which is a departure from how the international gold price is currently discovered.
Currently the international gold price is established (discovered) by a combination of the London Over-the-Counter (OTC) gold market trading and US-centric COMEX gold futures exchange.
However, ‘gold’ trading in London and on COMEX is really trading of very large quantities of synthetic derivatives on gold, which are completely detached from the physical gold market. In London, the derivative is fractionally-backed unallocated gold positions which are predominantly cash-settled, in New York the derivative is exchange-traded gold future contracts which are predominantly cash-settles and again are backed by very little real gold.
While the London and New York gold markets together trade virtually 24 hours, they interplay with the current status quo gold reference rate in the form of the LBMA Gold Price benchmark. This benchmark is derived twice daily during auctions held in London at 10:30 am and 3:00 pm between a handful of London-based bullion banks. These auctions are also for unallocated gold positions which are only fractionally-backed by real physical gold. Therefore, the de facto world-wide gold price benchmark generated by the LBMA Gold Price auctions has very little to do with physical gold trading.
It seems that slowly and surely, the major gold producing nations of Russia, China and other BRICS nations are becoming tired of the dominance of an international gold price which is determined in a synthetic trading environment which has very little to do with the physical gold market.
The Shanghai Gold Exchange’s Shanghai Gold Price Benchmark which was launched in April 2016 is already a move towards physical gold price discovery, and while it does not yet influence prices in the international market, it has the infrastructure in place to do so.
When the First Deputy Chairman of the Bank of Russia points to London and Switzerland as having less relevance, while spearheading a new BRICS cross-border gold trading system involving China and Russia and other “major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal”, it becomes clear that moves are afoot by Russia, China and others to bring gold price discovery back to the realm of the physical gold markets. The icing on the cake in all this may be gold price benchmarks based on international physical gold trading.
Last week, Goldman Sachs pointed out a very disturbing trend in the US labor market: where the participation rate for women in the prime age group of 25-54 have seen a dramatic rebound in the past 2 years, such a move has been completely missing when it comes to their peer male workers. As Goldman’s jan Hatzius put in in “A Divided Labor Market”, “some of the workers who gave up and dropped out of the labor force during the recession and its aftermath still have not found their way back in.” In fact, the labor force participation rate of prime-age (25-54 year-old) women has rebounded quite a bit and is now only moderately below pre-crisis levels, but the rate for prime-age men remains well below pre-crisis levels.
While Goldman did not delve too deeply into the reasons behind this dramatic gender gap, BofA’s chief economist Michelle Meyer did just that in a note released on Friday titled “The tale of the lost male.” As we have discussed previously, and as Goldman showed recently, Meyer finds that indeed prime-working age men – particularly young men – have failed to return to the labor force in contrast to women who have reentered. According to Meyer, while this reflects some cyclical dynamics, including skill mismatch and stagnant wages, what is more troubling is that there are several new secular stories at play such as greater drug abuse, incarceration rates and the happiness derived from staying home playing games.
The macro implications, while self-explanatory, are dire: with the labor force participation rate among young men unlikely to rebound, the unemployment rate should fall further and cries of labor shortages will remain loud, even as millions of male Americans enter middle age without a job, with one or more drug addition habits, and with phenomenal Call of Duty reflexes. Here’s why.
First, The Facts
The overall LFPR is at 62.7%, up from the lows of 62.4% in 2015 but still considerably below the peak in 2000 of 67.3%. BofA estimates that more than half of the decline in the LFPR is due to demographics – as the population ages, the aggregate participation rate naturally falls. However, even after controlling for demographics, the participation rate of prime-working age individuals has failed to recover. As shown by Goldman above, and in BofA’s Chart 1 below, “this reflects the fact that men have not returned to the labor force. This is not a new phenomenon as the participation rate for prime working aged men has been on a secular downshift for the past several decades. However, it stands in contrast with the participation rate of women of the same age cohort which has rebounded nicely.”
Looking at age cohorts, the weakness among men is particularly acute among 25-34 years old where the rate has continued to slip lower. This is offset by a modest uptrend in participation among men aged 45-54 years old (Chart 2). In other words, the millennial men have remained on the sidelines of the labor market.
Now, The Theories
Why haven’t men – particularly millennial men – returned to the labor market? According to Meyer, on the one hand, there are the typical business cycle explanations which center on the mismatch in skills. There is also the theory of stagnant wages which may discourage new entrants into the labor market. On the other hand, there are secular changes for men, including the rise in pain medication usage (opioid drug abuse), incarcerations, and prioritization of leisure (think video games).
BofA reviews each in order, starting with the story of mismatch
The recession resulted in more severe job cuts for men than for women, in part due to the nature of the downturn; indeed, male employment fell by a cumulative 6.9% vs a 3.2% drop for women. The goods-side of the economy shed workers, particularly in construction and manufacturing, which tend to be more male-dominated. Both sectors were slow to recover, leaving workers to become detached from the labor market with depreciating skills. Moreover, the destruction of jobs in these sectors discouraged the younger generation from attaining the skills necessary to enter these fields. A prime example is the construction sector: the average age of a construction worker increased to 42.7 in 2016 from 40.4 pre-crisis, reflecting the fact that there were fewer young workers becoming trained in the discipline. By mid-2013, builders started to complain about the difficulty in finding labor, particularly skilled workers. This illustrates how the Great Recession displaced workers and led to a mismatch of skills.
Logically, there is also the influence of rising wages – or the lack thereof – on the incentive to work. Wage growth has been slow to recover on aggregate with only 2.4% yoy nominal wage growth as of October. However, there are differences by education with relative weakness for less educated men (Chart 3). This shows the demand shift away from this population, leaving them on the fringe of the labor force. Accordingly, the labor force participation rate for men with only a high school diploma has declined by 6.2% since 2007 vs. the 5.3% drop in the college educated cohort.
The Pain From Opioids
Moving to the more depressing narratives, BofA next explores the possibility that the rise in drug abuse – particularly opioids – is leaving men unemployed and displaced from the labor force. Recent work from Alan Krueger found that the rise in opioid prescriptions from 1999 to 2015 could account for about 20% of the decline in the male labor force participation rate during that same period. Referencing the 2013 American Time Use Survey – Well-being Supplement (ATUS-WB), 43% of NLF prime age men indicated having fair or poor health, a stark contrast with just 12% for employed men. The same cohort also reported significantly higher levels of pain rating, with 44% having taken pain medication, opioids particularly, on the reference day. It is hard to prove causality – is the increase in pain causing more dependence on opioids, leading to a drop in the labor force participation, or did the lack of job opportunities lead this population to drug abuse? Either way, it seems to be a factor keeping prime aged individuals from working – both men and women, according to Kreuger’s analysis.
Incarceration On The Rise
The rising number of incarcerations imposes another issue. Although prisoners are not counted toward the total civilian non-institutional population when calculating the LFPR, the problem associated with the labor market goes beyond prisons. The growing number of incarcerations has left more people with criminal records, making it difficult for them to reenter the workplace. Indeed, the share of male adult population of former prisoners has increased from 1.8% in 1980 to 5.8% in 2010 (Chart 4). The Center for Economic and Policy Research has also found that people who have been imprisoned are 30% less likely to find a job than their non-incarcerated counterparts. Not surprisingly, a look into the details by demographic cohort finds that men make up nearly 93% of all prisoners, of which one third are between the ages of 25 and 34.
Why Work When You Can Play Video Games
Finally there is the question of preference – is it possible that we are seeing more young men choosing leisure over labor? According to the ATUS (time use survey), between 2004-07 and 2012-15, the average amount of time men aged 21-30 worked declined by 3.13 hours while the number of hours playing games increased by 1.67 and the hours using computers rose by 0.6 (Chart 5). Once again there is a question of causality – are young men playing video games because it is hard to find work or because they prefer it over working? Using the 2013 Supplement ATUS, Krueger finds that game playing is associated with greater happiness, less sadness and less fatigue than TV watching and it is considered to be a social activity. This can create a loose argument that the improvement in video games has increased the enjoyment young men get from leisure, putting a priority on leisure over labor. It also begs the question over whether welfare benefits for the unemployed aren’t just a touch too generous, but that is a discussion best left for another day…
Whatever the reasons behind the collapse in male – and especially Millennial – labor force participation, the undeniable result has led a number of industries to report persistent labor shortages. To get a sense of this, BofA compares the ratio of the rate of job openings to hires across major industry using the JOLTS data. All major sectors have witnessed an increase in the ratio (Chart 6). (Note that due to trend differences across industries, it is more important to look at the relative changes in ratios instead of their absolute values). The biggest relative increase was in construction followed by transportation and utilities. This is the goods side of the economy where men tend to be a larger share of the working population, therefore highlighting the challenges in the economy from the shortage of men participating in the labor force. This is consistent with Beige Book commentary which highlighted in the latest edition that
“Many Districts noted that employers were having difficulty finding qualified workers, particularly in construction, transportation, skilled manufacturing, and some health care and service positions.”
There are two implications: number one, the unemployment rate is set to fall further. In October we already touched 4.1% and are just a few thousand workers away from a 3-handle on the unemployment rate. The second is that wages should be rising. As Meyer writes, while it has yet to translate to a decisive higher trend in wage inflation, “we continue to argue that further tightening in the labor market will gradually succeed in generating faster wage growth.” To be sure, modest upward pressure on wages – especially if it is felt across industries and education levels – could encourage some return of labor, but it will likely be slow given the structural challenges addressed above. The consequence: cries of labor shortages will remain loud, even as wages finally rebound from chronically, and troublingly, low levels. In fact, some speculate that the wage rebound – once it emerges – could be sharp and destabilizing, and ultimately, as Albert Edwards predicted, could result in a “nightmare scenario” for the Fed (and capital markets) which will suddenly find itself far behind the tightening curve.
With Republicans scrambling to find every possible dollar to pay for Trump’s “massive” tax reform package, on Wednesday morning a new analysis by the CBO (congressional budget office) calculated that repealing ObamaCare’s individual mandate – an idea that had been floated previously by Trump – would save $338 billion over 10 years. CBO previously estimated repeal would save $416b over 10 years due to reduced use of Obamacare subsidies, demonstrating once again how “fluid” government forecasts are.
The report was released as the Senate prepares to unveil its own version of the Tax reform bill amid growing GOP dissent, and comes as some Republicans are pushing for repealing the mandate within tax reform, as a way to help pay for tax cuts. Still, as The Hill reports, that idea has met resistance from some Republican leaders who do not want to mix up health care and taxes. Previously the CBO had come under fire on Tuesday from Sen. Mike Lee (R-Utah), who slammed the agency after Sen. Bill Cassidy (R-La.) told The Hill that he had been informed that the CBO was changing its analysis of the mandate to find significantly less savings.
Just as notable was the CBO’s announcement that it was changing the way it analyzes the mandate, which Republicans suspect would show less government savings and fewer people becoming uninsured as a results.
“The agencies are in the process of revising their methods to estimate the repeal of the individual mandate,” he said. “However, because that work is not complete and significant changes to the individual mandate are now being considered as part of the budget reconciliation process, the agencies are publishing this update without incorporating major changes to their analytical methods.”
Sen. Tom Cotton, R-Ark., who has been one of the most vocal advocates of including repeal of the individual mandate in the tax bill, has touted the savings that would come as a result. His team said it is confident that the scoring will include similar numbers to previous reports. “We’re confident the CBO estimate will still show a substantial — north of $300 billion — savings for tax reform,” Caroline Tabler, spokeswoman for Cotton, told the Washington Examiner in an email.
CBO has been criticized for years for its analyses on the effects of the individual mandate. Republicans have charged that the mandate isn’t as effective as CBO concludes and have said they want to see it repealed. Some Obamacare supporters also have said it should be stronger by becoming more expensive or should be more heavily enforced.
While the CBO calculation is a boost to Republicans who want to repeal the mandate in tax reform, because it means there are still significant savings to be had from repealing the mandate, mandate repeal still faces long odds. Repealing the mandate – a broadly unpopular decision in many states – could also destabilize health insurance markets by removing an incentive for healthy people to enroll.
Earlier in the day, the CBO said that according to the Joint Committee on Taxation, the “Tax Cuts and Jobs Act” would increase deficits over the next decade by $1.4 trillion, which is good enough to slip under the $1.5 trillion limit required for reconciliation. The CBO did however add that the additional debt service would boost the 10-year increase in deficits to $1.7 trillion.
‘A Trip Down Market Street‘ was shot on April 14, 1906, just four days before the San Francisco earthquake and fire, to which the negative was nearly lost. It was produced by moving picture photographers the Miles brothers (Harry, Herbert, Earle and Joe). Harry J. Miles hand-cranked the Bell & Howell camera which was placed on the front of a streetcar during filming on Market Street from 8th, in front of the Miles Studios, to the Ferry building.
A few days later the Miles brothers were en route to New York when they heard news of the earthquake. They sent the negative to NY, and returned to San Francisco to discover that their studios were destroyed.
Filmed during the era of silent film, Sound Designer and Engineer Mike Upchurch added sound to enhance the incredible video and immerse viewers into the hustle and bustle of San Francisco’s Market Street at the turn of the 20th century. Upchurch adds:
Automobile sounds are all either Ford Model T, or Model A, which came out later, but which have similarly designed engines, and sound quite close to the various cars shown in the film. The horns are slightly inaccurate as mostly bulb horns were used at the time, but were substituted by the far more recognizable electric “oogaa” horns, which came out a couple years later. The streetcar sounds are actual San Francisco streetcars. Doppler effect was used to align the sounds.
Market Street – San Francisco 1906 – After the Earthquake – DashCam View – Silent
League’s attendance, viewership dropping while SJW’s ruin pro football.
Week 1 of the NFL season had plenty of important stories worth following, but maybe the most entertaining was the mostly empty stadiums in Los Angeles and Santa Clara.
Latest discussion on how the SJW’s are destroying pro football below …
“We’re Just Trying To Feed Our Families”
Two days after credit-monitoring company Equifax revealed that, because of its staggering negligence, hackers had managed to penetrate the company’s meager cyber security defenses and abscond with up to 143 million social security numbers and a trove of other personal data – including names, addresses, driver’s license data, birth dates and credit-card numbers – the cyberthieves responsible are threatening to sell the data to the highest bidders unless they receive a ransom payment of 600 bitcoin – worth about $2.6 million, according to CoinTelegraph.
In the ransom note, which was published on the dark web, the hackers said they were just two regular people trying to get by – and that, while they don’t want to hurt anybody, they need to monetize the information as soon as possible. They promised to delete the data as soon as the ransom was received.
“We are two people trying to solve our lives and those of our families.
We did not expect to get as much information as we did, nor do we want to affect any citizen.
But we need to monetize the information as soon as possible.”
The hackers have now made a ransom demand, stating on a Darkweb site that they will delete the data for a ransom payment of 600 BTC, worth approximately $2.6 million.
The demand said that if they do not receive the funds from Equifax by September 15th, they will publicize the data.
Meanwhile, as we reported last night, two plaintiffs have filed a $70 billion class-action lawsuit against Equifax in a Portland, Ore. federal court – a case that has the potential the crush the company with a massive payout.
In the lawsuit, lawyers from Olsen Daines PC, who filed it on behalf of plaintiffs Mary McHill and Brook Reinhard, alleged that Equifax was negligent in failing to protect consumer data, and that the company chose to save money instead of spending on technical safeguards that could have stopped the attack.
Imagine how much angrier they would be if they found that instead of “saving” the money, the company used it instead to buy back its own stock (in this case from selling executives)?
the two plaintiffs in the case filed in Portland, Ore., federal court has every single merit to ultimately crush Equifax for what is nothing less than unprecedented carelessness in handling precious information.
Of course, in what will likely be remembered as a massively stupid public relations blunder, Equifax “neglected” to specify that an arbitration waiver included in an online portal allowing customers to check on the status of their information “does not apply to this cybersecurity incident.”
…We wonder, which incident does it apply to then?
Here’s the company’s full statement from the company, courtesy of the Washington Post:
Meanwhile, one reporter who was examining the company’s web portal pointed out what is either a hilarious glitch, or an ominous indication that the most troubling reveal is yet to come…
Our Economy Is Optimized For Financialization
The Achilles Heel of our socio-economic system is the secular stagnation of earned income, i.e. wages and salaries. Stagnating wages undermine every aspect of our economy: consumption, credit, taxation and perhaps most importantly, the unspoken social contract that the benefits of productivity and increasing wealth will be distributed widely, if not fairly.
Optimization is a complex overlay of dynamically linked systems: the central bank optimizes the flow of cheap credit to the banking/financial sector, the central state tacitly approves the consolidation of cartels and quasi-monopolies, and gives monstrous tax breaks to corporations even as it jacks up taxes and fees on wage earners and small business.
These commoditized assets include home mortgages, student loans, and specialized labor forces which are “sold” with their employers or arbitraged globally. Once an asset is commoditized, the profits flow to those who process the transactions of packaging and marketing these assets globally.
Take auto loans as an example: the big money isn’t made from collecting the interest on the auto loans; the big money is made by processing and assembling the loans into tranches that can be sold to investors globally.
One way of understanding financialization is to ask: what’s the quickest, easiest way to make $10 million in our economy? Is it building a business based on the labor of employees over a decade or two?
You’re joking, right? The easiest way to make $10 million is to be part of the investment banking team overseeing a $10 billion corporate buyout or merger deal, or investing seed money in a tech company that subsequently goes public. How about the easiest and quickest way to make $100 million? The answer is the same: working a vein of financial wealth based on commoditized instruments, leverage and credit.
Labor’s share of the national income is in freefall as a direct result of the optimization of financialization. The money flows to those with the capital, credit and expertise to optimize financialized skims. As for selling one’s labor in an economy optimized for capital and the asymmetries of finance–there’s no premium for labor in such an economy, other than
technical/managerial skills required by finance to exploit markets.
This is the driver of the rising income-wealth inequality this chart reveals:
Equifax said exposed data includes: names, birth dates, Social Security numbers, addresses, driver’s license numbers and credit card numbers.
(Via CNBC) Equifax, which supplies credit information and other information services, said Thursday that a data breach could have potentially affected 143 million consumers in the United States.
The population of the U.S. was about 324 million as of Jan. 1, 2017, according to the U.S. Census Bureau, which means the Equifax incident affects a huge portion of the United States. Equifax said it discovered the breach on July 29. “Criminals exploited a U.S. website application vulnerability to gain access to certain files,” the company said.
Shares of Equifax fell more than 5 percent during after-hours trading.
Equifax said exposed data includes names, birth dates, Social Security numbers, addresses and some driver’s license numbers, all of which the company aims to protect for its customers.
The company added that 209,000 U.S. credit card numbers were obtained, in addition to “certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers.”
Equifax CEO and Chairman Richard Smith apologized to consumers, customers and noted that he’s aware the breach affects what Equifax is supposed to protect.
Equifax said it is now alerting customers whose information was included in the breach via mail, and is working with state and federal authorities. Its private investigation into the breach is complete. (LINK)
A 31-year-old professional woman has turned her back on expensive rents and property prices – by living full time in a van. With an interior measuring just 13ft 2in long, 5ft 8in wide and 6ft 2in high, Eileah Ohning’s home is her Freightliner Sprinter High Top van. The photographic producer from Columbus, Ohio, has lived in her compact four-wheel home since May 2017. Complete with a memory foam mattress, storage compartments, a desk and a camping stove, she even has plans to add in a shower, toilet and fridge. Eileah parks her van close enough to her workplace that she never needs to worry about the morning commute and showers at her local gym.
- Auto dealers are expecting a surge in business once Houston gets back on its feet.
- Used-car values are already close to a record high, and Mannheim Auto Auctions says prices could climb even higher over the next couple of weeks due to the tighter supply.
They seem to be in almost every picture or video of flooded neighborhoods in and around Houston.
There are scores of cars and trucks with water up to their windows and in some cases over the hood and roof.
In fact, the flooding is so extensive, Cox Automotive estimates a half-million vehicles may wind up in the scrap yard.
“This is worse than Hurricane Sandy,” said Jonathan Smoke, chief economist for Cox Automotive. “Sandy was bad, but the flooding with Hurricane Harvey could impact far more vehicles.”
After Hurricane Sandy battered New York and New Jersey in October 2012, an estimated 250,000 vehicles were scrapped.
While the New York metropolitan area has more residents than Houston, the number of vehicles per household is much higher in Houston.
That means more cars, trucks and SUVs were parked on the street and in garages when Harvey swamped the city and surrounding areas.
With so many vehicles in the flood zone, auto insurers will be busy handling claims and cutting checks so flood victims can buy another car or truck.
Auto dealers are expecting a surge in business once Houston gets back on its feet.
Those shopping for a used car may be surprised at the prices they see. Used-car values are already close to a record high, and Mannheim Auto Auctions says prices could climb even higher over the next couple of weeks due to the tighter supply.
Meanwhile, not all of the flooded vehicles will wind up in the salvage yard. Many will be cleaned up and resold, often without the new buyer realizing they are buying a salvaged car or truck.
“It’s going to happen, that’s inevitable,” said Frank Scafidi with the National Insurance Crime Bureau. “Look at all those vehicles floating around. There are people who will try to take advantage of the situation.”
The resale of repaired flooded cars is not illegal, as long as the flood damage is disclosed on the title to buyers. After Hurricane Katrina, thousands of rebuilt flood vehicles were sold to unsuspecting buyers with titles that had been washed or reissued in a different state.
“We didn’t see this on a huge scale until Hurricane Katrina,” said Scafidi. “Since then the public awareness of the problem is greater, but with thousands of flooded vehicles it’s hard to prevent this from happening.”
After we first reported last week that US credit card debt hit a new all time high with both student and auto loans rising to fresh records with every new report…
… it won’t come as a surprise that according to the just released latest quarterly household debt and credit report by the NY Fed, Americans’ debt rose to a new record high in the second quarter on the back of an increase in every form of debt: from mortgage, to auto, student and credit card debt. Aggregate household debt increased for the 12th consecutive quarter, and are now $164 billion higher than the previous peak of $12.68 trillion set in Q3, 2008. As of June 30, 2017, total household indebtedness was $12.84 trillion, or 69% of US GDP: a $114 billion (0.9%) increase from the first quarter of 2017 and up $552 billion from a year ago. Overall household debt is now 15.1% above the Q2 2013 trough.
Mortgage balances, the largest component of household debt, increased again during the first quarter to $8.69 trillion, an increase of $64 billion from the first quarter of 2017. Balances on home equity lines of credit (HELOC) were roughly flat, and now stand at $452 billion. Non-housing balances were up in the second quarter. Auto loans grew by $23 billion and credit card balances increased by $20 billion, while student loan balances were roughly flat.
- Confirming the slowdown in mortgage activity, mortgage originations in Q2 declined to $421 billion from $491 billion. Meanwhile, there were $148 billion in auto loan originations in the second quarter of 2017, an uptick from the first quarter and about the same as the very high level in the 2nd quarter of 2016.
- Auto loan balances increased by $23 billion, continuing their 6-year trend. Auto loan delinquency rates increased slightly, with 3.9% of auto loan balances 90 or more days delinquent on June 30. The aggregate credit card limit rose for the 18h consecutive quarter, with a 1.6% increase.
- Outstanding student loan balances rose modestly, and stood at $1.34 trillion as of June 30, 2017. The second quarter typically witnesses slow or no growth in student loan balances due to the academic cycle. As discussed previously, a perilously high 11.2% of aggregate student loan debt was 90+ days delinquent or in default in 2017 Q2.
In a troubling development, the report noted that the distribution of the credit scores of newly originating mortgage and auto loan borrowers shifted downward somewhat, as the median score for originating borrowers for auto loans dropped 8 points to 698, and the median origination score for mortgages declined to 754. For now this credit score decline has not impacted the credit market: about 85,000 individuals had a new foreclosure notation added to their credit reports in the second quarter as foreclosures remained low by historical standards.
And while much of the report was in line with recent trends, and the overall debt that was delinquent, at 4.8%, was on par with the previous quarters, the NY Fed did issue a red flag warning over the transitions of credit card balances into delinquency, which the New York Fed said “ticked up notably.”
Discussing the troubling deterioration in credit card defaults, first pointed out here in April, the New York Fed said that credit card balance flows into both early and serious delinquencies increased from a year ago, describing this as “a persistent upward movement not seen since 2009.” As shown in the chart below, the transition into 30 and 90-Day delinquencies has, over the past two quarters, surged to the highest rate since the first quarter of 2013, suggesting something drastically changed in the last three quarters when it comes to US consumer behavior.
“While relatively low, credit card delinquency flows climbed notably over the past year,” said Andrew Haughwout, senior vice president at the New York Fed. “This is occurring within the context of loosening lending standards, as borrowers with lower credit scores recover their ability to access credit cards. The current state of credit card delinquency flows can be an early indicator of future trends and we will closely monitor the degree to which this uptick is predictive of further consumer distress.”
That bolded statement, is the first official warning by the Fed that the US consumer is sick, and the Fed has no way reasonable explanation for this troubling jump in delinquencies. Timestamp it, because this will certainly not the be the last time the Fed warns about the dangerous consequences of all-time high credit card debt.
As for the “further uptick in consumer distress”, we are just guessing but the fact that credit card defaults are jumping at a time when sales at fast food and other restaurants have declined for 17 consecutive quarters, and when $250 billion in US household savings was just “revised” away, may all be connected.
Amazon wiped out billions of dollars worth of grocery store market cap last month when they announced plans to purchase Whole Foods. The announcement sent shares of Kroger, Wal-Mart, Sprouts, and Target, among others, plunging… (WMT -4%, TGT -5.5%, SFM -7.6%, KR -12%).
But, as we pointed out back in May, well before Amazon’s decision to buy Whole Foods, Amazon’s success in penetrating the traditional grocery market was always a matter of when, not if. Concept stores, like Amazon Go, already exist that virtually eliminate the need for dozens of in-store employees which will allow them to generate higher returns at lower price points than traditional grocers. And, with grocery margins averaging around 1-2% at best, if Amazon, or anyone for that matter, can truly create smart stores with no check outs and cut employees in half they can effectively destroy the traditional supermarket business model.
And while the demise of the traditional grocery store will undoubtedly take time (recall that people were calling for the demise of Blockbuster for nearly a decade before it finally happened), make no mistake that the retail grocery market 10-15 years from now will not look anything like the stores you visit today.
And while the demise of the traditional grocery store will undoubtedly take time (recall that people were calling for the demise of Blockbuster for nearly a decade before it finally happened), make no mistake that the retail grocery market 10-15 years from now will not look anything like the stores you visit today.
So, grocers have a choice: (i) adapt to the technological revolution that is about to transform their industry or (ii) face the same slow death that ultimately claimed the life of Blockbuster.
As such, as the the St. Louis Post-Dispatch points out today, the relatively small Midwest grocery store chain of Schnucks has decided to roll out the first of what could eventually be a large fleet of grocery stocking robots.
A slender robot named Tally soon will be roaming the aisles at select Schnucks groceries, on the lookout for out-of-stock items and verifying prices.
Maryland Heights-based Schnuck Markets, which operates 100 stores in five states, on Monday will begin testing its first Tally at its store at 6600 Clayton Road in Richmond Heights. The pilot test is expected to last six weeks. A second Tally will appear in coming weeks at Schnucks stores at 1060 Woods Mill Road in Town and Country and at 10233 Manchester Road in Kirkwood.
The robots are the first test of the technology in Missouri and could ultimately be expanded to more Schnucks stores.
Each 30-pound robot is equipped with sensors to help it navigate the store’s layout and avoid bumping into customers’ carts. When it detects product areas that aren’t fully stocked, the data is shared with store management staff so the retailer can make changes, said Dave Steck, Schnuck Markets’ vice president of IT and infrastructure.
Tally, created by a San Francisco-based company named Simbe, is also being tested at other mass merchants and dollar stores all across the country.
Founded in 2014, Simbe has placed Tally robots in mass merchants, dollar stores and groceries across the country, including some Target stores in San Francisco last year.
“The goal of Tally is to create more of a feedback mechanism,” Bogolea said. “Although most retailers have good supply chain intelligence, and point-of-sale data on what they’ve sold, what’s challenging for retailers is understanding the true state of merchandise on shelves. Everyone sees value in higher quality, more frequent information across the entire value chain.”
The robot does take breaks. When Tally senses it’s low on power, it finds its way to a charging dock. And, the robot is designed to stay out of the way of customers. If it detects a congested area, it’ll return to the aisle when it’s less busy. If a shopper approaches the robot, it’s programmed to stop moving.
Meanwhile, with nearly 40,000 grocery stores in the U.S. employing roughly 3.5mm people, most of whom work at or near minimum wage, Bernie’s “Fight for $15” agitators may want to take note of this development.
College graduates and other young Americans are increasingly clustering in urban centers like New York City, Chicago and Boston. And now, American companies are starting to follow them. Companies looking to appeal to, and be near, young professionals versed in the world of e-commerce, software analytics, digital engineering, marketing and finance are flocking to cities. But in many cases, they’re leaving their former suburban homes to face significant financial difficulties, according to the Washington Post.
Earlier this summer, health-insurer Aetna said it would move its executives, plus most of technology-focused employees to New York City from Hartford, Conn., the city where the company was founded, and where it prospered for more than 150 years. GE said last year it would leave its Fairfield, Conn., campus for a new global headquarters in Boston. Marriott International is moving from an emptying Maryland office park into the center of Bethesda.
Meanwhile, Caterpillar is moving many of its executives and non-manufacturing employees to Deerfield, Ill. from Peoria, Ill., the manufacturing hub that CAT has long called home. And McDonald’s is leaving its longtime home in Oak Brook, Ill. for a new corporate campus in Chicago.
“Visitors to the McDonald’s wooded corporate campus enter on a driveway named for the late chief executive Ray Kroc, then turn onto Ronald Lane before reaching Hamburger University, where more than 80,000 people have been trained as fast-food managers.
Surrounded by quiet neighborhoods and easy highway connections, this 86-acre suburban compound adorned with walking paths and duck ponds was for four decades considered the ideal place to attract top executives as the company rose to global dominance.
Now its leafy environs are considered a liability. Locked in a battle with companies of all stripes to woo top tech workers and young professionals, McDonald’s executives announced last year that they were putting the property up for sale and moving to the West Loop of Chicago where “L” trains arrive every few minutes and construction cranes dot the skyline.”
The migration to urban centers, according to WaPo, threatens the prosperity outlying suburbs have long enjoyed, bringing a dose of pain felt by rural communities and exacerbating stark gaps in earnings and wealth that Donald Trump capitalized on in winning the presidency.
Many of these itinerant companies aren’t really moving – or at least not entirely. Some, like Caterpillar, are only moving executives, along with workers involved in technology and marketing work, while other employees remain behind.
“Machinery giant Caterpillar said this year that it was moving its headquarters from Peoria to Deerfield, which is closer to Chicago. It said it would keep about 12,000 manufacturing, engineering and research jobs in its original home town. But top-paying office jobs — the type that Caterpillar’s higher-ups enjoy — are being lost, and the company is canceling plans for a 3,200-person headquarters aimed at revitalizing Peoria’s downtown.”
Big corporate moves can be seriously disruptive for a cohort of smaller enterprises that feed on their proximity to big companies, from restaurants and janitorial operations to other subcontractors who located nearby. Plus, the cancellation of the new headquarters was a serious blow. Not to mention the rollback in public investment.
“It was really hard. I mean, you know that $800 million headquarters translated into hundreds and hundreds of good construction jobs over a number of years,” Peoria Mayor Jim Ardis (R) said.
For the village of Oak Brook, being the home of McDonald’s has always been a point of pride. Over the year’s the town’s brand has become closely intertwined with the company’s. But as McDonald’s came under pressure to update its offerings for the Internet age, it opened an office in San Francisco and a year later moved additional digital operations to downtown Chicago, strategically near tech incubators as well as digital outposts of companies that included Yelp and eBay. That precipitated the much larger move it is now planning to make.
“The village of Oak Brook and McDonald’s sort of grew up together. So, when the news came, it was a jolt from the blue — we were really not expecting it,” said Gopal G. Lalmalani, a cardiologist who also serves as the village president.
Lalmalani is no stranger to the desire of young professionals to live in cities: His adult daughters, a lawyer and an actress, live in Chicago. When McDonald’s arrived in Oak Brook, in 1971, many Americans were migrating in the opposite direction, away from the city. In the years since, the tiny village’s identity became closely linked with the fast-food chain as McDonald’s forged a brand that spread across postwar suburbia one Happy Meal at a time.
“It was fun to be traveling and tell someone you’re from Oak Brook and have them say, ‘Well, I never heard of that,’ and then tell them, ‘Yes, you have. Look at the back of the ketchup package from McDonald’s,’ ” said former village president Karen Bushy. Her son held his wedding reception at the hotel on campus, sometimes called McLodge.
The village showed its gratitude — there is no property tax — and McDonald’s reciprocated with donations such as $100,000 annually for the Fourth of July fireworks display and with an outsize status for a town of fewer than 8,000 people.”
Robert Gibbs, the former White House press secretary who is now a McDonald’s executive vice president, said the company had decided that it needed to be closer not just to workers who build e-commerce tools but also to the customers who use them.
“The decision is really grounded in getting closer to our customers,” Gibbs said.
Some in Oak Brook have begun to invent conspiracy theories about why McDonald’s is moving, including one theory that the company is trying to shake off its lifetime employees in Oak Brook in favor of hiring cheaper and younger urban workers.
“The site of the new headquarters, being built in place of the studio where Oprah Winfrey’s show was filmed, is in Fulton Market, a bustling neighborhood filled with new apartments and some of the city’s most highly rated new restaurants.
Bushy and others in Oak Brook wondered aloud if part of the reasoning for the relocation was to effectively get rid of the employees who have built lives around commuting to Oak Brook and may not follow the company downtown. Gibbs said that was not the intention.
‘Our assumption is not that some amount [of our staff] will not come. Some may not. In some ways that’s probably some personal decision. I think we’ve got a workforce that’s actually quite excited with the move,’ he said.”
Despite Chicago’s rapidly rising murder rate and one would think its reputation as an indebted, crime-ridden metropolis would repel companies looking for a new location for their headquarters. But crime and violence rarely penetrate Chicago’s tony neighborhoods like the Loop, where most corporate office space is located.
“Chicago’s arrival as a magnet for corporations belies statistics that would normally give corporate movers pause. High homicide rates and concerns about the police department have eroded Emanuel’s popularity locally, but those issues seem confined to other parts of the city as young professionals crowd into the Loop, Chicago’s lively central business district.
Chicago has been ranked the No. 1 city in the United States for corporate investment for the past four years by Site Selection Magazine, a real estate trade publication.
Emanuel said crime is not something executives scouting new offices routinely express concerns about. Rather, he touts data points such as 140,000 — the number of new graduates local colleges produce every year.
“Corporations tell me the number one concern that t: Zerohey have — workforce,” he said.”
Chicago Mayor Rahm Emanuel said the old model, where executives chose locations near where they wanted to live has been upturned by the growing influence of technology in nearly every industry. Years ago, IT operations were an afterthought. Now, people with such expertise are driving top-level corporate decisions, and many of them prefer to live in cities.
“It used to be the IT division was in a back office somewhere,” Emanuel said. “The IT division and software, computer and data mining, et cetera, is now next to the CEO. Otherwise, that company is gone.”
Each new policy destroys another level of prudent fiscal/financial discipline.
The primary driver of our economy–financialization–is in a death spiral. Financialization substitutes expansion of interest, leverage and speculation for real-world expansion of goods, services and wages.
Financial “wealth” created by leveraging more debt on a base of real-world collateral that doesn’t actually produce more goods and services flows to the top of the wealth-power pyramid, driving the soaring wealth-income inequality we see everywhere in the global economy.
As this phantom wealth pours into assets such as stocks, bonds and real estate, it has pushed the value of these assets into the stratosphere, out of reach of the bottom 95% whose incomes have stagnated for the past 16 years.
The core problem with financialization is that it requires ever more extreme policies to keep it going. These policies are mutually reinforcing, meaning that the total impact becomes geometric rather than linear. Put another way, the fragility and instability generated by each new policy extreme reinforces the negative consequences of previous policies.
These extremes don’t just pile up like bricks–they fuel a parabolic rise in systemic leverage, debt, speculation, fragility, distortion and instability.
This accretive, mutually reinforcing, geometric rise in systemic fragility that is the unavoidable output of financialization is poorly understood, not just by laypeople but by the financial punditry and professional economists.
Gordon Long and I cover the policy extremes which have locked our financial system into a death spiral in a new 50-minute presentation, The Road to Financialization. Each “fix” that boosts leverage and debt fuels a speculative boom that then fizzles when the distortions introduced by financialization destabilize the real economy’s credit-business cycle.
Each new policy destroys another level of prudent fiscal/financial discipline.
The discipline of sound money? Gone.
The discipline of limited leverage? Gone.
The discipline of prudent lending? Gone.
The discipline of mark-to-market discovery of the price of collateral? Gone.
The discipline of separating investment and commercial banking, i.e. Glass-Steagall? Gone.
The discipline of open-market interest rates? Gone.
The discipline of losses being absorbed by those who generated the loans? Gone.
And so on: every structural source of discipline has been eradicated, weakened or hollowed out. Financialization has consumed the nation’s seed corn, and the harvest of instability is ripening in the fields of finance and the real economy alike.
For the past few years, most retailers have struggled. Of course, it’s easy to blame Amazon.com, but it is only one of many causes. At the same time, for us hedgies living in major cities with luxury malls, there is confusion about the problem itself – my mall is crowded and people are shopping. After having debated with friends endlessly on what the real root of the problem is, I decided it was time to actually go investigate. Every city has its own story and the local mall is the nexus of that story.
In my mind, the only way to get real answers was a 4-day, 1,500 mile meandering road-trip through the lower mid-west, where we planned to hit as many malls and take as many meetings with facility managers and brokers as we could organize along the way. Besides, when an asset class like mall real estate is down 90% in a few years’ time, a different viewpoint can create huge upside.
The overriding question was: is retail suffering because of Amazon.com cannibalizing store-fronts or are rising health care costs, with stagnant wage growth, what’s really cannibalizing disposable spending power in middle-America? Is shopping still America’s pastime or do we prefer food and “experiences” instead? Every industry evolves. Why hasn’t the mall changed in the past three decades – it’s still the same cinema, crappy food court and undifferentiated retailers that I knew when I was a teen—where’s the fun in that? Other countries are perfecting “shoppertainment,” why hasn’t America? In summary, what is the real issue with retail?
When you scroll through http://deadmalls.com there is a certain eeriness about a million square feet of empty space.
However, the images don’t, in any way, prepare you for an almost-dead mall on its last gasps. As we wandered one facility with the head of leasing, we could look straight ahead at a thousand feet of almost vacant space, dimly lit from sky-lights as none of the lighting fixtures still worked—the air conditioner had long ago failed and it was 95 degrees inside this mall. However, there was one light that drew us forward. As we approached, we heard music and sure enough, it was the Victoria’s Secret that time forgot (corporate probably forgot it too). In a mall with only 7 tenants and even fewer shoppers, Victoria’s Secret was still jamming out. No customers, but 2 girls tending shop, blasting music and throwing light into a dark hallway.
As we rounded another corner, we heard the unmistakable sound of a Zumba Class at 100 decibels. As we drew nearer, we saw the first mall visitors in almost an hour – what looked like an instructor with a half dozen middle-aged women trying to do exercises that they were hopelessly unfit to accomplish.
I turned to the leasing agent;
Me: Any idea how much they pay in rent?
Him: Actually, I think they’re squatting in here. I don’t show any record of them being a tenant.
Me: Is anyone going to make them pay rent?
Him: Why bother, at least it brings people to the mall…
With no security or cleaning staff, who’s watering the plants?
All of this segwayed into the meeting with the leasing agent afterwards.
Me: Can I meet the facility manager when we’re done chatting?
Him: Funny story; actually, she quit a few months back. Unfortunately, the owner only told me last week that I am now in charge of managing this mall. I’m doing my best, but I live an hour away, so I can only come here a few times a week.
Me: So who’s been locking up at the end of the day lately?
Him: Hmmm…. Honestly, I’m not sure. That’s a pretty good question.
Me: Would anyone notice if they never locked the doors?
Him: Probably not…
Of course, you cannot quite put this into context until you realize that I was sitting there in a nearly pitch black food court, in 95 degree heat, with only a beam of light from the sky-light above to guide the conversation – yet despite the odds, one vendor still remained at the food court – ironically it was the sushi place.
While the tour was entertaining, what I really wanted to know was; why did this place, surrounded by a thriving community somehow fail? This is where the story actually deviates from the usual narrative.
This mall was in a community of about 100,000 people. A decade ago, this had been a thriving mall. Then, a new major highway was placed about 5 miles west of the mall, which diverted regional traffic away from the mall. Even worse, a massive open air retailing complex was built alongside the new highway, siphoning shoppers from the mall. In a town that was big enough to support one large shopping complex, the newer one with better access from the highway had ultimately won out. However, this mall was still muddling forward with a handful of national tenants who hadn’t quite thrown in the towel, despite no lighting, air conditioning or adult supervision at the mall. It lead to a real epiphany; malls die a slow strange death—not the cataclysmic collapse depicted by most analysts.
We saw a similar situation on the following day at another mall about 100 miles away. In this situation, a new retailing facility had been built closer to the local university to compete with the mall. This facility had stolen a number of the key tenants from the mall. At the time, it looked like this mall would also surrender to the newer facility in the better location. Instead, the mall was sold to new owners who; injected substantial capital to remodel the mall, offered discounted rent to retain existing tenants and had put up a fight to the death with the newer facility. Now, nearly a decade later, neither facility was full and both were desperately fighting it out for the minds of tenants and shoppers in a winner-take-all battle, a veritable retailing Battle of Verdun in the north of Texas—where even the winner will be a loser for having spent so much capital to win the booby prize of top retail destination in a town of about 125,000 people. Even worse, with no clear winner, new retailing concepts were hesitant to guess wrong in their expansion plans and simply chose to pass this town by when expanding—further sapping the strength of both facilities.
In fact, we continued to see similar stories as we ventured north. Retail may not be dead; instead there may simply be too much retail (both property and competing concepts) fighting it out for too few customers. This is further compounded by too much cheap capital developing more retail as a result of ultra-low interest rates. Naturally, there will be losers in this process – in fact; the losses have only just begun. There will also be huge winners.
Malls are bearing the brunt of changes in retail, but they’re only the canary in the coal mine.
Let’s start with a simple premise; commercial real estate (CRE) will change more in the next decade than it has in the past hundred years. Anyone who thinks they can fully foresee how it will evolve is lying to you. The only certainty is that highly leveraged real estate investors and lenders will be obliterated as current models evolve faster than anticipated.
In the past, retail was retail, warehouse was warehouse and office was office—the same for all other CRE classes. There was some cross-over, but the main commercial real estate components stayed segmented for the most part. Now, with big box stores, the lowest hanging fruit for online shopping to knock off, going to dodo-land, there will be hundreds of millions of feet of well-located space suddenly becoming available. People act as if there are enough Ulta Beauty and Dick’s Sporting Goods to go around. However, you cannot fill all of this space with the few big box retail concepts still expanding—especially as many stalwarts are themselves shrinking.
As a result, a huge game of musical chairs is about to take place. Why pay $20/ft for mid-rise office space, if you can now move into an abandoned Sports Authority for $5/ft. Sure, it doesn’t come with windows, but employees like open plan space and there’s plenty of parking. Besides, with the rental savings, you can offer your staff an in-house fitness facility and cafeteria for free. Does your mega-church need a larger space? There’s probably a former Sears or Kmart that perfectly accommodates you at $3/ft. Have an assisted living facility with an expiring lease? Why not move it to an abandoned JC Penney—the geriatrics will feel right at home, as they’re the only ones still shopping there.
Go onto any real estate website and you will find out that huge plan space is nearly free. No one knows what the hell to do with it and the waves of bankruptcy in big box are just starting. As online evolves, these waves will engulf other segments of retail as well.
Type Macy’s into Loopnet.com and look at how many millions of feet of old Macy’s are available for under $10/ft to purchase. Retail’s problems are about to become everyone’s problems in CRE. When the old Macy’s rents for $2/ft, what happens to everyone else’s rents? EXACTLY!!! What happens if a CRE owner is leveraged at 60% (currently considered conservative) and leasing at $15/ft when the old HHGregg across the street is offered for rent at $3/ft? An office owner can lower his rents a few dollars, but at the new price deck, he cannot cover his interest cost, much less his other operating expenses. What happens to a suddenly emptying mid-rise office building? It has higher operating expenses than the box store due to full-time security and cleaning—maybe it’s a zero—in that future market rents no longer cover the operating expenses of the asset, much less offer a return on investment. I know, crazy—that’s how musical chairs works when demand contracts and the supply stays the same.
What happens to the guys who lent against these assets? Kaplooey!!!
America currently has more feet of retail space per capita than any other country. For that matter, America has more feet of office and other CRE types per capita as well. A decade of low interest rates has made this problem substantially worse. Think of the two malls that I spoke about in the last piece — they weren’t done in by the internet, they were done in by a tripling of retail space in a cities that are barely growing. These cities simply ran out of shoppers for all of this space. Now the mall is empty—heck the strip retail is only partly filled in. The next step is that rents will drop—dramatically. The owners of each asset, the mall and the strip center will go bust. Neither has a cap structure that is designed for dramatically lower rents. Neither has an org structure designed for carving up this space for the sorts of eclectic tenants that will eventually absorb it over the next few decades.
CRE has had it so good for the past 35 years, that most owners have never seen a down cycle. Sure, Dallas had too much supply in the early ‘90’s. Silicon Valley over-expanded in the early ‘00’s. It took a few years for it to be absorbed. Anyone who had capital during the bust made a fortune. This time may really be different. There’s too much supply. Short of blowing it up, it will be with us for years into the future. Without dramatic economic or population growth, some of it may NEVER be absorbed.
As an investor, this is all interesting to understand, but you don’t fully comprehend it until you have visited a few dozen of these facilities and seen how owners are trying to cope with the problem. In Miami, space is constricted. In Texas, there’s more CRE than I’ve ever seen. They keep putting it up—even if there isn’t demand currently. For three decades, they’ve always been able to fill it over time. For the first time ever, they can’t seem to fill it—in fact, demand is now declining. It is now obvious; there will be a whole lot of pain for CRE owners and lenders. Of course, someone’s pain can be someone’s gain.
Amazon bought Whole Foods today. Widespread carnage in the grocery stock prices followed. Jim Cramer called it a major deflationary disruption saying stores cannot compete.
“If I was the Federal Reserve, I would have a meeting on this. Inflation is going to go down…. You have to rethink food … Costco knows how to compete. It will be in there tooth and nail with toilet paper and paper towels. … But Kroger, a crisis in Cincinnati, crisis.”
“Major Disruption of Society”
SupplyChain247 reports Amazon’s Move to Purchase Whole Foods Is ‘Disruption of Society’
TheStreet’s Action Alerts PLUS Portfolio Manager Jim Cramer said Amazon’s move to acquire Whole Foods is a disruption of society, “this is what I regard to be a move by Amazon to destroy the margins and own the business of food and groceries in this country,” Cramer said.
With Amazon putting down $13.7 billion to buy Whole Foods, Bezos is sending a powerful message to his retail rivals;
- Food suppliers will now be dealing with an even larger grocery store, meaning potentially pressured profit margins for organic players such as Hain Celestial.
- Amazon officially shows intent to enter bricks-and-mortar retail in a larger way than just bookstores. Combine that with its unmatched digital presence, Walmart, Target and others have been put on notice.
- Grocer stores like Kroger will now be in an even bigger price war.
- Amazon Prime integrated into Whole Foods could hurt Costco over time. Many Costco members are also Prime members.
“What Amazon did to the mall, it will now do to grocery stores,” said Cramer.
Here is a Tweet to think about:
The second-quarter economic report misery continues in a major way today with housing starts and permits unexpectedly falling.
The Econoday consensus was was for starts to rise 4.35%. Instead, starts fell 5.5%. Adding insult to injury, April was revised lower by 1.37 percentage points making the consensus estimate off by an amazing 11.22 percentage points.
The bad economic news keeps building, this time in the housing sector. Housing starts fell an unexpected 5.5 percent in May to a far lower-than-expected annualized rate of 1.092 million with permits likewise very weak, down 4.9 percent to a 1.168 million rate.
All components show declines with single-family starts down 3.9 percent to a 794,000 rate and permits down 1.9 percent to 779,000. Multi-family starts fell 9.7 percent to 298,000 with permits down 10.4 percent to 389,000. Total completions did rise 5.6 percent to a 1.164 million rate, which adds supply to a thin market, but homes under construction slipped 0.7 percent to 1.067 million.
Adding to the bad news are downward revisions to starts including April which is now at 1.156 vs an initial 1.172 million. Looking at the quarter-to-quarter comparison, starts have averaged 1.124 million so far in the second quarter, down a very sizable 9.2 percent from 1.238 million in the second quarter. Permits, at an average of 1.198 million, are down 4.9 percent.
Residential investment looks to be yet another negative for second-quarter GDP.
Mortgage News Dailly has some amusing comments by Lawrence Yun, the National Association of Realtors chief economist, in its report Drop in Housing Starts Could Intensify Inventory Issues.
The negative report prompted the following statement from the National Association of Realtor’s Chief Economist Lawrence Yun. “Housing shortages look to intensify and may well turn into a housing emergency if the discrepancy between housing demand and housing supply widens further. The falling housing starts and housing permits in May are befuddling given the lack of homes for sale and the quick pace of selling a newly-constructed homes. Meanwhile, job creations of a consistent 2 million a year will push up housing demand further. One thing that moving up is the housing costs for consumers: higher home prices and higher rents.”
Yun is befuddled. That’s hardly surprising given that it does not take much to befuddle economists.
Let me clear up the confusion:
- People cannot afford homes so they are not buying them.
- Builders will not purposely build homes to sell at a loss.
- The alleged demand for new homes is imaginary.
Such analysis is beyond the scope of most economists, so I am happy to help out.
As if things weren’t bad enough for America’s mall owners, what with the having to filling their retail space with high schools, grocers and churches, it seems that retailers have grown so uncertain about the future of these 1980s relics that they’re only willing to sign 1-2 year leases these days.
As Bloomberg points out this morning, leases renewals used to be 5-10 years in length but are increasingly only being signed with 1-2 year terms. Meanwhile, thousands of stores are closing each year and it’s only expected to get worse over time.
After more than a dozen bankruptcies this year contributed to thousands of store closures, visibility for the industry is so poor that retailers are pushing for lease renewals as short as a year or two — down from five to 10 years.
“You’re certainly seeing the renewals geared toward the shorter term, rather than the five-year renewal,” said Andrew Graiser, head of A&G Realty Partners. Retailers are now struggling to figure out how many stores they actually need, he added, and landlords are looking at them “with a much closer eye than they did before.”
Somewhere between 9,000 and 10,000 stores will close in the U.S. this year, said Garrick Brown, vice president of Americas retail research for commercial broker Cushman & Wakefield — more than twice as many as the 4,000 last year. He sees this figure rising to about 13,000 next year.
“Everyone’s trying to figure out where the bottom of the market’s going to be,” Brown said. He estimates it could occur in 2018 or early 2019.
Not surprisingly, retailers are finding it difficult to sign long-term leases in an environment where 26% of malls around the country are expected to close their doors over the next five years.
Further complicating the lease-length dilemma is the question of which shopping centers will still be around in a decade. Cushman & Wakefield’s Brown sees about 300 of 1,150 U.S. malls shutting down in the next five years.
Perry Mandarino, senior managing director and head of corporate finance at B. Riley & Co., predicts that retail bankruptcies and restructurings will further accelerate in 2018. Some of this will be the result of a long-overdue shakeout of the surfeit of U.S. store space, but the downturn is also compounded by shifts to online shopping and consumers spending on experiences rather than physical stuff, he said.
Meanwhile, landlords are trying to fight back, though it’s a fairly difficult task both arms tied behind their backs.
Landlords “have their backs against the wall, so they’ve been fighting back, hard,” he said. “What you have is a game of chicken up to the end.”
“With all this excess inventory, landlords are trying to do whatever they can to keep malls occupied,” Agran said. “The more empty spaces, the more difficult it is to attract new tenants.”
Frankly, it’s shocking that Abercrombie wouldn’t jump at the opportunity to scoop up some prime square footage in this mall…it already has the Chili’s awning and everything.
Commodities Bust Hits Farm Lenders
When it comes to agricultural debt, the numbers aren’t huge enough to take down the global financial system. But this shows how much pain the commodities rout is producing in the farm belt just when the farmland asset bubble that took three decades to create is deflating, and what specialized lenders and the agricultural enterprises they serve – some of them quite large – are currently struggling with in terms of delinquencies.
This is what delinquencies on loans for agricultural production – not including loans for farmland, which we’ll get to in a moment – look like:
From Q4 2014 to Q1 2017, delinquencies have soared by 225% to $1.4 billion, according to the Board of Governors of the Federal Reserve, which just released its report on delinquencies and charge-offs at all banks. This is the highest amount since Q1 2011, as delinquencies were falling after the Financial Crisis. That amount was first breached in Q4 2009.
The delinquency rate rose to 1.5%, the highest since Q3 2012. On the way up, going into the Financial Crisis, delinquencies breached that rate in Q1 2009.
These were the loans associated with agricultural production. In terms of loans associated with farmland, delinquencies have soared by 80% from Q3 2015 to Q1 2017, reaching $2.15 billion:
Farmland values have surged for three decades but are now in decline in many parts of the US. For example in the district of the Federal Reserve of Chicago (Illinois, Indiana, Iowa, Michigan, and Wisconsin), prices soared since 1986, in some years skyrocketing well into the double-digits, including 22% in 2011, and nearly tripling since 2004. It was the Great Farmland Bubble that had become favorite playground for hedge funds. But starting in 2014, prices have headed south.
This chart from the Chicago Fed’s AgLetter shows farmland prices in its district in two forms, adjusted for inflation (green line) and not adjusted for inflation (blue line):
Adjusted for inflation, farmland prices in the district fell 9.5% over the past three years. The exception is Wisconsin:
Iowa (since their 2012 peak) -15%
The Chicago Fed adds this about the deflating farmland asset bubble, in inflation-adjusted terms:
Even after three annual declines, the index of inflation-adjusted farmland values for the District was nearly 60% higher in 2016 than its previous peak in 1979.
Does it mean to say that there is a lot more air to deflate out of the farmland bubble and a lot more pain to come and that this is just the beginning? Or is it saying that this is no big deal?
These falling farmland prices are making the debt much more precarious. So on a nationwide basis, the delinquency rate of farmland loans, according the Fed’s Board of Governors, jumped from 1.46% in Q3 2015 to 2.0% in Q1 2017.
In terms of magnitude of the dollars involved, agricultural and farmland loans pale compared to consumer or commercial loans. So the problems in the farm belt won’t cause the next Global Financial Crisis, and it progresses on its own terms. But it is putting strain on agricultural lenders, growers, and their communities.
J.P. Morgan is offering regional banks some interesting advice: Partner Up as U.S. Deposit Drain Looms.
JPMorgan Chase & Co. has some advice for regional banks: A deposit drain is coming, so merge while you can.
The company’s investment bankers are warning depository clients that they may begin feeling the crunch in December, thanks to a byproduct of how the U.S. Federal Reserve propped up the economy after the financial crisis, according to a copy of a confidential presentation obtained by Bloomberg News and confirmed by a JPMorgan spokesman.
JPMorgan argues that some midsize U.S. banks — those with $50 billion in assets or less — could face a funding problem in coming years as the Fed goes about shrinking its massive balance sheet, according to the 19-page report the New York-based bank has begun sharing with clients.
The Fed is currently holding about $4.5 trillion of securities. The way it will get rid of them is by letting them mature and not buying new ones.
JPMorgan’s presentation, titled “Core Deposits Strike Back” illustrates how this process will sap bank deposits using the example of a couple who pays off a mortgage that was bundled with other mortgages and sold to the Fed. Right now, when that couple takes that money out of their bank account for that payment, the Fed uses that cash to buy another mortgage bond, recycling it back into the banking system.
A “deposit is destroyed” if the “Fed does not reinvest,” the presentation states.
JPMorgan estimates that a quantitative easing-related deposit-drain could result in loan growth lagging deposit growth by $200 billion to $300 billion a year.
Midsize banks will have an especially hard time growing retail deposits by ramping up advertising and investing in branches, according to JPMorgan’s presentation. That’s because they lack the marketing muscle of mega banks such as JPMorgan itself, as well as Wells Fargo & Co., Citigroup Inc., and Bank of America Corp. JPMorgan, like some other banks, offers depositors cash incentives for opening new checking and savings accounts with five-figure balances.
About 42 percent, or $1.6 trillion, of the new deposits that U.S. banks have amassed since late 2009 have gone to lenders with at least $1 trillion in assets, according to data JPMorgan compiled from regulatory filings and SNL Financial.
“Large banks are making sizable investments in brand, customer acquisition and technology leading to market share gains,” according to the report.
Somehow this smacks of self-serving advice. Merge with JPMorgan while you can.
By the way, it seems the banks had the playbook before the report.
Nearly every major regional bank missed its lending estimate. As discussed on April 29, a Regional Lender Loan Crash is underway.
The economy will never collapse.
Ladies and gentlemen, I am a banker. That’s right, that evil, fat cat, wall street banker that became such a popular moniker during our last administration and I’m also a prepper. Rather than debate the topic of bugging in/out of an incredibly densely populated area which I contend with all the time, I wanted to write about a topic that I see a lot of op-eds about and that is the impending doom of economic collapse and it being the pretense for TEOTWAWKI.
As anyone who is skilled in their field of practice is, I have the ability (mostly because I’m intricately connected to it every day) to decipher the ongoing fear that we as a nation are teetering on the brink of economic collapse and that you must immediately liquidate all holdings and bank accounts and mattress those funds. I will try to impress upon you below how unlikely and improbable this really is.
As a student of Finance you’re taught words like inflation, bubbles and leverage. You pause and look at “The Market” throughout the day and wonder why Apple is up or why oil is down but you really don’t understand how tightly things are tied together and quite frankly how much reliance on everything a simple stock or sector has on everything else in the global economy. Now don’t get me wrong, any company can have a bad day, or week or year. I’s talked about all the time. But the system crashing down as a result of just the system and not some other calamity like plague or an EMP for that matter is just not going to happen.
Checks and Balances
For an economy like the U.S. to go belly up, that would essentially mean that every other country in the world just doesn’t care about receiving payments on their debt. When I spoke above about things being so tied together, did you know that practically every country in the world owns the United States? That’s right, the Chinese own the statue of liberty, the French own the grand canyon and our friends in the Congo own Mt Rushmore. It’s true, well maybe not exactly but that deficit everyone hears about is nothing more than conceptual money that we owe ourselves not to mention every other country out there. No one is coming to collect.
Do you think there’s a vault out there with trillions of dollars in it? I promise you there’s not. Corporations, foreign governments and independent debt owners care about one thing and one thing only, the interest payment. The interest on the debt they have in the investment they make. That monthly stipend of interest is what’s real and more importantly how people balance the check book. No one ever assumes they’ll get their money back, in fact if they did, we’d be in a far better position. All we’d have to do is print the money but guess what, it wouldn’t be worth very much if there was an excess of it would it? Nobody wants to be paid back these ridiculous sums of money for one simple reason, their value will go down. 1 trillion dollars in owed money is worth 100 times what 1 trillion dollars in cash is. Checks and Balances is just that, what makes the world go round is certainty that you can collect on your debt, not by collecting on what’s owed. The country’s of the world can’t function with trillions of dollars sitting in a vault, they’d essentially be broke.
Value is just perception
If you have a house, and you want to sell it, what’s it worth? Whatever you think your house is worth based on improvements you might have made or what your county is assessing a tax figure on and holding you accountable to pay is really not the answer. Your home and anything for that matter is worth what we call fair market value. Fair market value is the price that some else (the market) is willing to pay (fair value). I bring this up because such is the case with everything when it comes to what things are worth. Now a house is much different from an investment vehicle like a bond for example. You live in your house, it provides you safety, security, memories all of which are equitable things. You might even be willing to put a price tag on that in your mind. A bond or a stock or balance sheet doesn’t really stack up to that house of yours does it? Yet this is what the world economy is made up of, fictional pieces of perceived value. They don’t even print shares of stock or bond anymore so you couldn’t burn it to keep you warm at night. That’s not me being a cynic it’s just the truth. Everything we have with regard to wealth is just in the perception of faith and tied to nothing really tangible. Take a minute to think about that.
Every once in a while, corrections are needed
But banker you ask, what about the next recession, my portfolio might evaporate if it’s not allocated appropriately. Well folks, I’m here to tell you, you losing money is all part of the master plan. Making money is too however. There’s an old adage, maybe you’ve heard it. “Markets can digest good news and bad news but they hate uncertainty”. Isn’t that true of mostly everything come to think of it? Fact is our entire system was built on bull runs (times in which there’s a surge in value) and bear runs (times in which there’s a decline in value). If no one ever lost money the system wouldn’t work. Value wouldn’t change because risk would be taken out of the equation. Everyone would be richer but no one would be richer. What makes the world economy function is that there’s no guarantee that stipend I mentioned that all governments are tied to will be insured and reliable. This is where jockeying comes in and the gambling mentality takes over. Since the dawn of modern finance prospectors and prognosticators have set the benchmark to try to out-earn (even by just the tiniest of margins) their competitors. People wager on perceived value and that’s the x-factor (greed that is) that sets the bulls or bears running and ushers in peaks and valleys. Corrections are there by design and you’ll have to stomach it unless you plan to completely go off grid. That’s not really prepping though, that’s fully prepared. For the rest of us that aspire to “get there”, you have to be prepared to get bounced around with the financial tide.
OK oh ye faithful that have stuck around and for those of you that did, thank you, here’s the synopsis. Unless greed is wiped from the earth OR unless the debt holders want to stop making money, the system will not collapse. Even in the greatest of calamity’s like The Great Depression and or The Great Recession people made money. They just chose the right time to bet against common thought. Point is the system always recovers. We as preppers, for lack of a better way to say it are prepared. We’re prepared beyond what’s in our refrigerator or a minor terrorist crisis in our general vicinity or at least we’re trying to get there. Know this, peaks and valleys within our financial system will always continue but with 100% certainty, the system is rigged.
If things ever got bad enough for the U.S. to the point of bread lines and soup kitchens, we’d just print the money we needed as a government to make our debt payment. If another country couldn’t make their payment, we’d just chisel away at their principal and then auction it off again to the highest bidder for, that’s right you guessed it, another payment plan. Take solace in the fact that there are 100 others ways all of them far more likely to disrupt the balance and cause us to make tough decisions for our family’s. For the ones convinced that the economic system will fail them, you might be caught short-handed in your preps. Invest instead in gas masks or wind turbines or lamp oil, hey, you might just make someone rich.
In its latest outlook for the U.S. lodging sector, CBRE Hotels’ Americas Research noted that the sector will continue to accrue benefits from achieving the industry’s all-time record occupancy record in 2016 of 65.4%.
However, a range of expected factors, from new hotel supply entering the market to the growing influence of Airbrb, is expected to impact hotel returns in 2017. CBRE forecasts the average daily rate (ADR) will increase 3.3% next year, a strong positive indicator but a lower ADR growth rate than in 2016, and a continuation of a trend since 2014.
According to CBRE, ADR movement will vary by location and chain-scale, with Northern California markets such as Sacramento and Oakland, along with Washington, D.C. and Tampa projected to lead the nation, with ADR gains of more than 6% during 2017.
“Conventional wisdom says that at such high occupancy levels, hoteliers should have the leverage to implement strong price increases,” notes R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research. “However, like for much of 2016, you need to throw conventional wisdom out the window.”
In fact, CBRE sees slight declines in occupancy combined with minimal real gains in ADR as the pattern through 2020.
“Lodging is a cyclical business and we continue to see U.S. hotels sit on top of the peak of the cycle after recovering from the Great Recession,” Woodworth said, adding that the positive outlook for lodging demand and resulting high levels of occupancy will continue to keep the sector on a steady but level path.
“While flat performance sounds disappointing, the strong underpinnings supporting continued growth in travel will prevent an outright fall from the peak,” Woodworth added.
For lodging REITs, the current cycle appears to be similar to the 1990s, during which a prolonged economic expansion sustained growth in revenue per available room (RevPAR) or nearly a decade, said Brian H. Dobson, REIT analyst for Nomura.
While lodging is entering the latter stages of its life cycle when RevPAR growth usually plateaus, supply headwinds in urban markets is expected to reduce RevPAR growth by an additional 100 basis points, resulting in 2% growth through 2018, Dobson said.
Chiming in with its hotel outlook, PricewaterhouseCoopers (PwC) said the lodging cycle is expected to moderate after seven years of growth. PwC analysts predicted supply growth will increase at the long-term historical average of 1.9%, but they forecast a decline in demand growth will lead to the first occupancy decline that the U.S. lodging industry has seen in eight years.
“Uncertainty, combined with plateauing growth in corporate profits, is expected to continue to weigh on corporate transient demand,” PwC said in its assessment.
“Additional demand-side concerns, including the strong U.S. dollar, Brexit, and economic weakness in the Eurozone, Zika, and depressed energy sector activity, are all expected to contribute to the continued weakness in lodging sector demand growth.”
Mall Investors Are Set to Lose Billions as America’s Retail Gloom Deepens
The blame lies with online shopping and widespread discounting.
The dramatic shift to online shopping that has crushed U.S. department stores in recent years now threatens the investors who a decade ago funded the vast expanse of brick and mortar emporiums that many Americans no longer visit.
Weak September core retail sales, which strip out auto and gasoline sales, provide a window into the pain the holders of mall debt face in coming months as retailers with a physical presence keep discounting to stave off lagging sales.
Some $128 billion of commercial real estate loans—more than one-quarter of which went to finance malls a decade ago—are due to refinance between now and the end of 2017, according to Morningstar Credit Ratings.
Wells Fargo estimates that about $38 billion of these loans were taken out by retailers, bundled into commercial mortgage-backed securities (CMBS) and sold to institutional investors.
Morgan Stanley, Deutsche Bank, and other underwriters now reckon about half of all CMBS maturing in 2017 could struggle to get financing on current terms. Commercial mortgage debt often only pays off the interest and the principal must be refinanced.
The blame lies with online shopping and widespread discounting, which have shrunk profit margins and increased store closures, such as Aeropostale’s bankruptcy filing in May, making it harder for mall operators to meet their debt obligations.
Between the end of 2009 and this July e-commerce doubled its share of the retail pie and while overall sales have risen a cumulative 31 percent, department store sales have plunged 17 percent, according to Commerce Department data.
According to Howard Davidowitz, chairman of Davidowitz & Associates, which has provided consulting and investment banking services for the retail industry since 1981, half the 1,100 U.S. regional malls will close over the next decade.
A surplus of stores are fighting for survival as the ubiquitous discount signs attest, he said.
“When there is too much, and we have too much, then the only differentiator is price. That’s why they’re all going into bankruptcy and closing all these stores,” Davidowitz said.
The crunch in the CMBS market means holders of non-performing debt, such as pensions or hedge funds, stand to lose money.
The mall owners, mostly real estate investment trusts (REITs), have avoided major losses because they can often shed their debt through an easy foreclosure process.
“You have a lot of volume that won’t be able to refi,” said Ann Hambly founder and chief executive of 1st Service Solutions, which works with borrowers when CMBS loans need to be restructured.
Cumulative losses from mostly 10-year CMBS loans issued in 2005 through 2007 already reach $32.6 billion, a big jump from the average $1.23 billion incurred annually in the prior decade, according to Wells Fargo.
The CMBS industry is bracing for losses to spike as loan servicers struggle to extract any value from problematic malls, particularly those based in less affluent areas.
In January, for example, investors recouped just 4 percent of a $136 million CMBS loan from 2006 on the Citadel Mall in Colorado Springs, Colorado.
Investor worries about exposure to struggling malls and retailers intensified in August when Macy’s said it would close 100 stores, prompting increased hedging and widening spreads on the junk-rated bonds made up of riskier commercial mortgages.
Adding to the stress, new rules, set to be introduced on Dec. 24, will make it constlier for banks to sell CMBS debt. The rules require banks to hold at least 5 percent of each new deal they create, or find a qualified investor to assume the risk.
This has already roughly halved new CMBS issuance in 2016 and loan brokers say the packaged debt financing is now only available to the nation’s best malls. Investors too are demanding greater prudence in CMBS underwriting.
Mall owners who failed to meet debt payments in the past would just hand over the keys because the borrowers contributed little, if any, of their own money. The terms often shielded other assets from being seized as collateral to repay the debt.
Dodging the overall trend, retail rents for premier shopping centers located in affluent areas continue to rise. Vacant retail space at malls is at its lowest rate since 2010, according to research by Cushman & Wakefield.
The low vacancy rate reflects the ability of some malls to fill the void left by store closings by offering space to dollar stores and discounters.
That is, however, little consolation for investors.
“With the retail consolidation that we have ahead of us, malls have a fair amount of pain left to come,” Edward Dittmer, a CMBS analyst at Morningstar, said.
✖ Janet Yellen is kicking around the idea of backing off of the Fed’s 2% inflation target.
✖ If the Fed lets the economy run hot, the yield curve will steepen.
✖ Equities should rally.
✖ Gold looks vulnerable with real yields still too low.
Janet Yellen, in a speech on Friday mentioned that the Fed could choose to allow the U.S. economy to “run hot” to allow for an increase in the labor participation rate. In typical Fed fashion, the goalposts are being moved once again, and the implication for the yield curve is important.
In Holbrook’s Q2 newsletter, “Brexit is not the Problem, Central Bank Policy is,” we wrote:
“Another scenario, one which Holbrook recognizes but does not represent our base forecast, is that the Federal Reserve will continue to drag its feet and not respond to accelerated wage gains. In this environment, longer-term yields will rise as inflationary expectations rebound. Larry Summers, among others, has recently advocated for such Fed policy, calling for them to increase their inflation targets. If this materializes, short-term rates will remain low, and the yield curve will steepen.” – July 1st, 2016
Janet Yellen’s comments on Friday indicate that this scenario is increasingly likely. It seems that the Federal Reserve, rather than taking a proactive stance against inflation as it has done in the past, it is going to be reactionary. If this is the case, investors can shift their attention from leading indicators like unemployment claims and wage growth, and instead focus on lagging indicators like PPI and CPI when assessing future Fed action.
The fixed income market is still pricing in a 65% likelihood of a rate hike in December, and given the abundance of dissenters at the September meeting, as well as recent remarks from Stanley Fischer, we expect the Fed to raise in December. After which, we presume the Federal Reserve will declare all meetings live and “data-dependent.” We expect that the Federal Reserve will NOT raise rates again until the core PCE deflator (their preferred measure) breaches 2%.
If they do choose to let the economy “run hot,” the market will need to figure out what level of inflation the Federal Reserve considers to be “hot.” Is it 2.5%? Is it 3%? At what level does the labor participation rate need to reach for further Fed normalization?
These questions will be answered in time as investors parse through the litany of Fed commentary over the next couple of months. In any case, a shift in the Fed mandate is gaining traction. Rather than fighting inflation, the Federal Reserve is now fighting the low labor participation rate. Holbrook expects such a policy to manifest itself in the following manner:
- Steepening yield curve
- Weakening dollar
- Further commodity appreciation
In terms of the equity markets, we expect the broad market to rally into year-end after the election – whatever the outcome. Bearish sentiment is still pervasive, and Fed inaction in the face of higher inflation should be welcomed by equity investors, at least in the short run. Holbrook is also cautious regarding gold. Gold is often described as an inflation hedge. However, this is incorrect. It is a real rate hedge. As real rates move lower, gold moves higher, and vice versa. With real rates at historical lows, we think there could be further weakness in the yellow metal.
The fixed income market is in the early stages of pricing in a “run-hot” economy. The spread between the yield on the thirty-year bond (most sensitive to changes in inflation) and the two-year bill (sensitive to Fed action) is testing its five-year downtrend. A successful breach indicates that the market has changed. The Federal Reserve is willing to keep rates low, or inflation is on the horizon, or both.
Holbrook’s research shows that during the current bull market, a bear steepening trade (long yields rise more than short-term yields) has implied solid market returns. The S&P 500 advances an average of 2% monthly in this environment. This environment is second only to a bull steepening trade (where short-term rates fall faster than long-term rates) during which the S&P 500 rose more than 3.5% monthly.
Flattening yield curves were detrimental to equity returns. You can see the analysis in our prior perspective, “Trouble with the Curve.” In any case, a steepening yield curve should bode well for equity prices.
Meanwhile, there is ample evidence that inflation is starting to make a comeback. Global producer price indices generally lead the CPI and they have been spiking this year. CPI will likely follow, and not just in the United States.
And finally, although the dollar has rallied over the last couple of weeks in expectation of a late-year rate hike, much of the deflationary effect from a stronger dollar is behind us. The chart below tracks the year-over-year percentage change in the dollar (green line, inverted) versus the year-over-year change in goods inflation (yellow line). The dollar typically leads by four months and as such is lagged in the graph.
As you can see, the shock of a stronger dollar is behind us and it is likely that the price deflation we have experienced will wane. If, over the next four months, the price of goods is flat year over year, which we expect, the core PCE deflator should register above the Fed’s 2% target. The real question is: How will the Fed react when this happens? Will they initiate additional rate hikes? Or will they let the economy “run hot?”
In the history of data from The Fed, this has never happened before…
Aggregate Auto Loan volume actually fell last week… And less loans means one simple thing… less sales (because prices have never been higher and no one is paying cash)…
Which is a major problem since motor vehicle production continues to rise as management is blindly belieiving the Hillbama narrative that everything is (and will be) awesome.
The problem is… inventories are already at near record highs relative to sales (which are anything but plateauing)…
In fact, the last time inventories were this high relative to sales, GM went bankrupt and was bailed out by Obama.
The big picture here is simple… US Automakers face a plunge in auto loans for the first time in this ‘recovery’, and with sales plunging and inventories near record highs, production (i.e. labor) will have to take a hit… and that plays right into Trump’s wheelhouse and crushes Hillbama’s narrative just weeks before the election.
Thousands of Americans are flocking to “Big Sky” country, and this movement has become so prominent that it has even caught the attention of the mainstream media. Within the last several weeks, both The Chicago Tribune and The Economist have done major articles on this phenomenon. From all over the country, conservatives, preppers and Bible-believing Christians are moving to Montana, Wyoming, Idaho and the eastern portions of Oregon and Washington. As you will see below, this region has become known as the “American Redoubt”, and for a variety of reasons it is considered by many survivalists to be one of the top “safe zones” for when things really start falling apart in this nation.
Many of you that are reading this article may think that it is quite strange that families are quitting their jobs, packing up everything they own and moving to the middle of nowhere, but for those that are doing it this actually make perfect sense. A recent Chicago Tribune article on this phenomenon began by profiling an ex-California couple that decided to flee the state for the friendly confines of north Idaho…
Don and Jonna Bradway recently cashed out of the stock market and invested in gold and silver. They have stockpiled food and ammunition in the event of a total economic collapse or some other calamity commonly known around here as “The End of the World As We Know It” or “SHTF” – the day something hits the fan.
The Bradways fled California, a state they said is run by “leftists and non-Constitutionalists and anti-freedom people,” and settled on several wooded acres of north Idaho five years ago. They live among like-minded conservative neighbors, host Monday night Bible study around their fire pit, hike in the mountains and fish from their boat. They melt lead to make their own bullets for sport shooting and hunting – or to defend themselves against marauders in a world-ending cataclysm.
The original article that the Chicago Tribune picked up came from the Washington Post. It was authored by Kevin Sullivan and photos were done by Matt McClain. If you would like to read the entire article you can find it right here.
And of course the Bradways are far from alone. Over the past 10 years, approximately five million people have fled the state of California. If I was living there, I would want to move out too. Once upon a time, countless numbers of young people were “California Dreaming”, but those days are long gone. At this point, the California Dream has become a California Nightmare.
Only a very small percentage of those leaving California have come up to the Great Northwest, but it is a sizable enough number to make a huge impact. Unfortunately, many of those that have come from California want to turn their new areas into another version of what they just left, and that is often firmly resisted by the locals.
But it isn’t just California – there are people streaming into the “American Redoubt” from all over the nation, and many of them are some of the finest people that you could ever hope to meet.
An article in The Economist points to a 2011 manifesto posted by James Wesley Rawles as the beginning of the “American Redoubt” movement…
In a widely read manifesto posted in 2011 on his survivalblog.com, Mr Rawles, a former army intelligence officer, urged libertarian-leaning Christians and Jews to move to Idaho, Montana, Wyoming and a strip of eastern Oregon and Washington states, a haven he called the “American Redoubt”.
Thousands of families have answered the call, moving to what Mr Rawles calls America’s last big frontier and most easily defendable terrain. Were hordes of thirsty, hungry, panicked Americans to stream out of cities after, say, the collapse of the national grid, few looters would reach the mostly mountainous, forested and, in winter, bitterly cold Redoubt. Big cities are too far away. But the movement is driven by more than doomsday “redoubters”, eager to homestead on land with lots of water, fish, and big game nearby. The idea is also to bring in enough strongly conservative voters to keep out the regulatory creep smothering liberty in places like California, a state many redoubters disdainfully refer to as “the C-word”.
Who wouldn’t want to live where the air is clear, the water is clean and the sky is actually brilliantly blue and not the washed out grayish blue that you get in most major cities?
And just having some breathing space is reason enough for some people to move to the Great Northwest. If you can get at least a few acres, you will quickly discover the joy of not having neighbors crammed in around you on every side.
Others wish to move to an area with a low population density for more practical reasons. As the New York Times recently reported, crime is rising in large cities all over America…
Murder rates rose significantly in 25 of the nation’s 100 largest cities last year, according to an analysis by The New York Times of new data compiled from individual police departments.
The findings confirm a trend that was tracked recently in a study published by the National Institute of Justice. “The homicide increase in the nation’s large cities was real and nearly unprecedented,” wrote the study’s author, Richard Rosenfeld, a criminology professor at the University of Missouri-St. Louis who explored homicide data in 56 large American cities.
Sadly, this is just the beginning. The chaos that we have seen in Dallas, Baton Rouge, Milwaukee, Ferguson, Baltimore, Chicago and elsewhere is going to get much worse. As the economy continues to unravel, we are going to see civil unrest on a scale that none of us have ever seen before. When that time comes, those that have moved to the middle of nowhere will be very thankful that they got out while the getting was good.
Over the last several years, my wife and I have met countless numbers of people that have moved up to the Great Northwest. All of their stories are different, but there is one common theme that we have noticed.
In the vast majority of cases, families tell us that they moved to the Great Northwest because they felt that God was calling them to do so. Individuals from many different churches and denominations have all felt the same call, and that creates a sort of kinship that is quite unusual these days.
Something big is happening in the Great Northwest. If you have never been up here, you might want to check it out some time.
American Redoubt — Move to the Mountain States
Updated: June 2, 2016
Recognizing both the fact that “all politics are local”, and the international readership of SurvivalBlog, I naturally de-emphasize politics in my blog. However, an article got my blood boiling: Motorists illegally detained at Florida tolls – for using large bills! So, not only are Federal Reserve Notes not redeemable “on demand” for specie, but effectively they are now no longer “…legal tender for all debts public and private.” It is often hard to pinpoint a breaking point–the proverbial “straw that broke the camel’s back”–as impetus for a paradigm shift, but reading that news article was that last straw for me. Consider my paradigm fully shifted. I’m now urging that folks Get Out of Dodge for political reasons–not just for the family preparedness issues that I’ve previously documented. There comes a time, after a chain of abuses when good men must take action. We’ve reached that point, folks!
Voting With Our Feet
I concur that Pastor Chuck Baldwin was right when he “voted with his feet” and moved his family from Florida to Montana. Like Chuck Baldwin I believe that is time for freedom-loving Christians to relocate to something analogous to “Galt’s Gulch” on a grand scale.
In March 2011, Ol’ Remus of The Woodpile Report quoted an essay by economist Giordano Bruno, titled The Return Of Precious Metals And Sound Money. In it, Bruno stated: “If there is anything good to come out of our present predicament, it is that Americans, from average citizens to elected officials, are beginning to understand the reality of coming collapse and are preempting it with measures designed to insulate their communities from the inevitable firestorm. Eventually, as this movement escalates, certain states will come out ahead of the pack, gaining a kind of “safe haven” status, and attracting liberty minded people from around the country to the protective shelter of their borders.”
Sociologist Albert O. Hirschman in his book Exit, Voice, and Loyalty, identifies the growing libertarian trend of “Exit” strategies, all the way from the individual level up to the level of nation states.
Giordano Bruno identified a trend that has been developing informally for many years: A conscious retrenchment into safe haven states. I strongly recommend this amalgamation, and that it be formalized. I suggest calling it The American Redoubt. I further recommend Idaho, Montana, Wyoming, eastern Oregon, and eastern Washington for the réduit. Some might call it a conglomeration, but I like to call it an amalgamation, since that evokes silver. And it will be a Biblically-sound and Constitutionally-sound silver local currency that will give it unity.
Update: It has been reported that 10 politically conservative counties in northern Colorado are planning on a peaceful partition, to form the new state of North Colorado. Needless to say, if they succeed I will expand the definition of the Redoubt!
(For re-use of this image, see the copyright notice, below.)
I anticipate that this nascent movement, and the gulch itself will be a lot bigger than most other pundits anticipate. It could very well be a multi-state amalgamation like The American Redoubt, that I’ve advocated.
Why Not Some Adjoining States?
I’m sure that I’ll get e-mail from folks, suggesting expanding the Redoubt concept to include Utah, the Dakotas, and Colorado. Let me preemptively state the following: Utah is a conservative state, but its desert climate makes it unsuitable to feed its current population, much less one swelled by in-migration. North and South Dakota have some promise, but I have my doubts about how defendable they would be if ever came down to fight. Plains and steppes are tanker country. It is no coincidence that the armies of the world usually choose plains for their maneuver areas, for large scale war games. Some might argue that I shouldn’t have included eastern Oregon and eastern Washington. The population densities are suitably low, and the populace is overwhelmingly conservative, but the folks there are still at mercy of the more populous regions west of the Cascades, that dictate their state politics. But who is to say that their eastern counties won’t someday partition to form new states, like West Virginia? This same factor is just as pronounced in rural Colorado. Just a few large cities call the political shots, and they have been assimilated by ex-Californians. For this reason I reluctantly took Colorado off the list.
Take a few minutes to look at a map that shows unpopulated regions in the United States. As you can see, a lot of that is in The American Redoubt.
To Clarify: Religious, Not Racial Lines
I’m sure that this brief essay will generate plenty of hate mail, and people will brand me as a religious separatist. So be it. I am a separatist, but on religious lines, not racial ones. I have made it abundantly clear throughout the course of my writings that I am an anti-racist. Christians of all races are welcome to be my neighbors. I also welcome Orthodox Jews and Messianic Jews, because we share the same moral framework. In calamitous times, with a few exceptions, it will only be the God fearing that will continue to be law abiding. Choose your locale wisely. I can also forthrightly state that I have more in common with Orthodox Jews and Messianic Jews than I do with atheist Libertarians. I’m a white guy, but I have much more in common with black Baptists or Chinese Lutherans than I do with white Buddhists or white New Age crystal channelers.
I also expect that my use of the term Redoubt will inspire someone to accuse me of some sort of neo-Nazism. Sorry, but I use the term in honor of Switzerland. When I chose the name I was thinking of the Schweizer Alpenfestung (aka Réduit Suisse), rather than any reference to the Nazi’s “National Redoubt” scheme at the end of World War II. I am strongly anti-totalitarian, and that includes all of its forms, including Nazism and Communism.
I’m inviting people with the same outlook to move to the Redoubt States, to effect a demographic solidification. We’re already a majority here. I’d just like to see an even stronger majority.
One important point: I do not, nor have I ever advocated asking anyone already living here to leave, nor would I deny anyone’s right to move here, regardless of their faith, (or lack thereof).
Closing ranks with people of the same faith has been done for centuries. It is often called cloistering. While imperfect, cloistering got some Catholics in Ireland through the Dark Ages with their skins intact and some precious manuscripts intact. (It is noteworthy that other copies of the same manuscripts were burned, elsewhere in Europe.) Designating some States as a Redoubt is nothing more than a logical defensive reaction to an approaching threat.
Are You With Us?
Read my Precepts page. If you aren’t in agreement with most of those precepts, then I don’t recommend that you relocate to the Redoubt–you probably won’t fit in.
I suggest that you follow these guidelines, as you prepare and then move to the American Redoubt:
- Research geography, climate, and micro-climates very carefully.
- Develop a home-based business.
- Lighten the load. Keep the practical items but sell your junk and impractical items at a garage sale.
- Bring your guns.
- Sell your television.
- Sell your jewelry and fancy wristwatch. Buy a Stihl chainsaw instead.
- Choose your church home wisely, seeking sound doctrine, not “programs”
- Leave your Big City expectations behind. There probably won’t be cell phone coverage, high speed Internet, or Pilates.
- Expect a long driving distances for work and shopping.
- Sell your bric-a-brac and collectibles. What is more important? A large collection of Hummel figurines, or having a lot of good hand tools and Mason jars?
- Switch to a practical wardrobe and “sensible shoes”.
- After your buy your land, convert the rest of your Dollar-denominated wealth into practical tangibles.
- Begin homeschooling your children.
- Sell your sports car and buy a reliable crew cab pickup.
- Expect persecution and hardship. You will be despised for being true to your faith. (Just read 2 Timothy 3:1-12. and Matthew 5:10-14, and John 15:18-19.)
- Encourage your kids to XBox and Wii less and read more.
- Make a clean break by selling your house and any rental properties. You aren’t coming back.
- If you buy an existing house, get one with an extra bedroom or two. Some relatives may be joining you, unexpectedly.
- Donate any older bulky furniture to the local charity store before you move.
After you move:
- Don’t try to change things to be like the suburb that you left behind. You are escaping all that!
- Pitch in by joining the local Volunteer Fire Department (VFD), Ski Patrol, Sheriff’s Posse, or EMT team.
- Be a good neighbor.
- Patronize the local farmer’s market and craft shows.
- Respect the property rights and the traditions of your neighbors.
- Be active, politically, but use a pseudonym in letters to the editor an internet posts.
- Use VPN tunneling, RSA encryption, firewalls, and anonymous remailers.
- Support local businesses, and companies that are headquartered inside the Redoubt, not Wal-Mart.
- Encourage like-minded family and friends to join you.
- Stock up heavily on storage foods for lengthy power failures, or worse.
- Do your banking locally, preferably with a credit union and/or a farm credit union.
- Be active in local home school co-ops and service organizations.
- Find and visit your local second-hand stores. Watch for useful, practical items that don’t need electricity.
- Conduct as much business as possible via barter or with precious metals.
- Gradually acquire a home library that includes self-sufficiency books and classic books–history, biographies, and novels.
- Join the local ham radio club. (Affiliated with the ARRL.)
- Expect to be the subject of gossip. Live a righteous life so there won’t be much to gossip about.
- Loyally support your local church with tithes and support your local food bank.
- Get used to eating venison, elk, moose, antelope, trout, and salmon.
- Attend some farm auctions in your region to gather a good collection of useful hand tools and a treadle sewing machine.
- Attend gun shows in your state. (This keeps money circulating in the state and keeps you legal, for private gun purchases.)
- Choose your fights wisely. Don’t tilt at windmills, but when you feel convicted, don’t back down.
I am hopeful that it is in God’s providential will to extend his covenantal blessings to the American Redoubt. And even if God has withdrawn his blessings from our nation as a whole, he will continue to provide for and to protect His remnant. Pray and meditate on Psalm 91, daily!
Addenda (April, 2011): 33 Ways to Encourage Atlas to Shrug
Ayn Rand’s 1957 novel “Atlas Shrugged” is enjoying renewed popularity following the release of the new Atlas Shrugged movie. Rand’s story describes a group of American industrialists that lose patience with onerous regulation and taxation, and “shrug”–disappearing from their normal lives to relocate to a hidden valley called Galt’s Gulch. While this tale is fictional, it has some strong parallels to modern-day America. And despite the fact that Ayn Rand was an atheist and favored legalized abortion, she was a good judge of both character and the inevitable tendencies of elected governments. When I consider the regulatory and tax burdens that have been implemented in my lifetime–I was born in 1960–I believe that Rand had amazing prescience. Let’s face it: We no longer live in a free market capitalist nation. At best, it could called a “mixed” economy with statist tendencies, and verging on socialism.
Reading the news headlines in recent months has led me to believe that the Galt’s Gulch concept has a lot of merit. If The Powers That Be wanted to encourage the Atlases of the world to shrug, they couldn’t have done a better job. What is the best way to get the most productive Citizens of our nation to go on strike, and retreat to “gulches”? Consider the following “to do” list for those whom Ayn Rand called “The Destroyers”:
- Remove the homeowner’s mortgage interest tax deduction. Yes, they’re pushing for it.
- Reinstate the Federal estate tax and pre-Bush Administration income tax levels. They want to impose the old tax rates on anyone with an income of $250,000. Oh, and the CBO’s budget predictions are all using the assumption that the 2001 tax cuts are reverted. Is this wishful thinking (to make the increases in the Federal debt not look quite so bad), or a fait accompli?
- Nationalize IRAs and 401(k)s. Yes, its under discussion.
- Increase taxes for unemployment-insurance funds. This is already in progress.
- Drag out approval of new mining operations with endless Environmental Impact studies. They’re already doing it.
- Inflate the currency to rob those who save money–a hidden form of taxation. Standard practice for 40 years.
- Drag out approval of newly-developed medicines. Now the status quo.
- Push up the rates for “sin” taxes on tobacco, alcohol, and other items. Already implemented in 2010.
- Increase the Minimum Wage. Several states have done so, but even worse yet, some unions are pushing for more socialist “Living Wage” laws
- Raise import tariffs. Each new tariff causes problems. Didn’t they ever hear Ben Stein’s high school Economics lecture on the Hawley-Smoot Tariff Act? (OBTW, Ben Stein is now warning about an economic collapse.)
- Increase the tax paperwork burden by requiring “1099-MISC” reporting of all cash transactions over $600. (Attempted, but thankfully set aside for the time being.)
- Increase the cost of doing business through mandatory insurance. (The “labor burden” for an employee with a nominal salary of $17 per hour ($35,360 gross, annually) is an additional $20,029 per year.) Workman’s compensation, in particular, is getting painfully expensive.
- Increase sales taxes. Several states have increased sales taxes, since 2009.
- Increase property taxes, as home values decline. Many counties have hiked their tax rates.
- Continue to increase the size of the government (and its debts). The Federal debt increases are looking inexorable.
- Push for increased mandatory employer-paid benefits for company employees like mandatory health insurance for part-time employees and European-style long term parental leave. Also, push toward excluding companies from government contracts unless they have expanded health care coverage.
- Mandate payment of state sales taxes on out-of-state purchases for Internet and mail orders. Yes, they’re still pushing for these taxes, and for regulation of the entire Internet.
- Create a pervasive Nanny State mentality. For example: penalize companies and consumers for high trans-fat foods, and alcoholic beverages that taste too good.
- Sue the makers of guns that actually work just as they were designed. (At least a partial law shield law was enacted, in 2005.)
- Use taxpayer funds to destroy classic cars that are in running condition, while subsidizing hybrid cars that use batteries that will pollute landfills for centuries.
- Over-regulate small firms out of business. Dry cleaners are a prime example.
- Fine farmers and ranchers for using traditional practices.
- Create a European-style Value Added Tax (VAT). Yes, they’re still pushing for it.
- Legislate expansion of company-paid health insurance to cover everything from same sex “domestic partners” and autism to sex change operations.
- Lobby for mandating that companies pay for three weeks of paid vacation per year for all employees.
- Institute dozens of unfunded mandates from the Federal level, that must be compensated for with higher state, county, and local taxes.
- Increase license, permit, and vehicle registration fees. In progress. Meanwhile, institute “temporary” tax increases. These surtaxes on income, sales, or real property are described as “temporary.” (But don’t be surprised if they are not repealed.)
- Providing free education to illegal immigrants while levying taxes on home schooling families for services that they don’t use.
- Make it illegal for owners to protect their livestock from predators.
- Remove the salary cap on Social Security tax “contributions”. The liberal think tanks are pushing for it.
- Encourage a litigious society where huge lawsuits are filed over trifles, and where the makers of products can be sued even if product buyers intentionally misuse products.
- Implement carbon taxes and credits. Still in early stages of implementation.
- And lastly, the big one: Implement socialized medicine. Despite a strong public outcry, it is now Federal law. But thankfully there is a push to rescind part or all of it.
The shrugging and gulching has already begun…
- Because many states define “small business” as a company with less than 50 employees, some business owners have frozen their employee headcount at 49, to avoid onerous costs.
- Companies and individuals are now consciously relocating from high tax states to low tax states.
- Wyoming has neither a personal income taxes nor corporate income taxes, so some wise individuals are moving there, or at least incorporating there.
- Millions of Americans are moving offshore and some have even renouncing their citizenship, in part to avoid high taxation. (It’s not just Mel Gibson buying property offshore.)
- There is a Walter Mitty-esque interest in living on “Seasteads” outside of any national boundaries. Although it probably impractical at present, the concept is nonetheless captivating.
- Glenn Beck recently mentioned an article about restaurateur Jerry Della Femina selling his business and parking the proceeds in gold and silver. He was quoted as saying: “I’m just not ready to have my wealth redistributed. I’m not ready to pay more tax money than the next guy because I provide jobs and because I work a 60-hour week and I earn more than $250,000 a year.”
- One recent headline: 69 Companies Leave California in First Quarter: Fastest Rate Ever.
- [Update, July 2011:] Alabama coal mine owner Ronnie Bryant became so exasperated by over-regulation that he declared: I’m quitting.”
Many folks are now ready to vote with their feet. Atlas is starting to shrug.
Addenda (May, 2011, with several updates in 2012 and 2013):
Finding a Prepper-Friendly Church
Many readers of SurvivalBlog are Christians. For us, the search for a desirable “vote with your feet” relocation locale includes a very important criteria: finding a good church home. I am of the opinion that finding a good church home is our Christian duty, and that it honors God. It is also an important factor in finding acceptance in a new community. By joining a church congregation that shares your world view, you can very quickly become part of a community, rather than being perceived as just “that new guy”. In many locales, this shortens the time required for a high level of acceptance and inclusion as a part of “the we”, by years.
In my experience in the western United States, Reformed churches tend to have a very high percentage of families that are both preppers and home schoolers.
When I put forth my American Redoubt plan, a key aspect was that it would be primarily geared toward fellow Christians, Messianic Jews, and conservative Jews.
Here is a list of my own criteria, for you to consider, perhaps as your baseline. (Note: I come from a Reformed Baptist background, so your criteria may differ):
- Reliance upon and belief in the literal truth of the 66 books of the Old and New Testament as the Inspired Word of God.
- Sound doctrine, with Christ as the cornerstone, and preferably in accord with the Five Solas and the Five Points of Calvinism. (Or at least four of them.)
- A strong emphasis on the Gospel of Christ.
- Some interest in family preparedness. (Not a necessity, but a nice plus.)
- A commitment to Christian Charity.
- An “…in the World but not of the World” outlook.
- Biblical evangelism–the pastor, elders, and congregation all take The Great Commission literally. (Avoid churches with any racism or anti-Semitism.)
- Expository preaching. (Systematic exposition of scripture.)
- An emphasis on teaching and memorizing God’s word with exhortation rather than “programs”.
- A congregation where a substantial portion of the body home schools their children. (Not a necessity, but a nice plus.)
- Congregants with a conservative outlook, modest dress, humble attitudes, and avoidance of worldly trappings.
- An edifying church that gives glory to God.
Reformed Churches in The American Redoubt States:
My initial list has about 25 Reformed churches that I’ve either attended or that have been recommended to me.
Note: The pastors of these churches will undoubtedly soon hear about the mention of their churches. I’d appreciate them sending me an e-mail mentioning whether or not they agree with the Redoubt concept, and with their recommendations for similar churches inside the five Redoubt States. Thanks!
- Columbia Bible Church, Meridian (An anonymous congregant wrote: “Columbia Bible Church is definitely Reformed Baptist in outlook, strong on families, home-schooling, and business minded, as well as many who are preparing. The church’s emphasis is the spread of the Gospel, by word and actions, so any “prep” outlook is based upon developing a comprehensive Christian worldview. Some of us help in that direction.”)
- Valley Life Community Church, Meridian
- Cloverdale United Reformed Church, Boise
- The Well, Boise
- All Saints PCA, Boise
- United Reformed Church of Nampa, Nampa
- Twin Falls Reformed Church, Twin Falls
- New Geneva Orthodox Presbyterian Church, Idaho Falls
- Port Cities Reformed Baptist Church, Lewiston
- Mountain View Baptist Church, P.O. Box 186, Pierce, Idaho 83546
- Christian Reformed Church, Grangeville
- Christ Church, Moscow
- Calvary Independent Baptist Church, Post Falls
- Post Falls Prebyterian Church, Post Falls
- Victory Baptist Church, Sagle
- Grace Sandpoint Church, Sandpoint
- Bonners Remnant Church, Bonners Ferry (Saturday Sabbath congregational church)
- Providence Bible Presbyterian Church, Bonners Ferry
- Christ Covenant Reformed Church, Billings
- Bozeman Christian Reformed Church, Bozeman
- Grace Bible Church, Bozeman
- Old Paths Strict Baptist Church, Choteau
- Beaverhead Baptist Church, Dillon
- Westside Baptist Church, Great Falls
- Liberty Fellowship, Kalispell (Pastor Chuck Baldwin agrees with the Redoubt concept.)
- Covenant Reformed Church, Missoula
- Fellowship Baptist Church, Sidney
- Three Lakes Community Bible Church, Troy
- Wolf Creek Baptist Church, Wolf Creek
- Yaak Community Church, Yaak
- Grace Reformed Presbyterian Church, Bend
- Living Water, La Pine
- Grace Bible Church, La Grande
- Berean Baptist Temple, Pendleton
- Grace Reformed Church, Clarkston
- Trinity Reformed Church, Pullman
- Emmanuel Church (OPC), Colville
- Marble Community Fellowship, Northport
- Reformation Community Church, Spokane
- Covenant Of Grace Protestant Reformed, Spokane
- Covenant Presbyterian Church (PCA), Walla Walla
- Laramie Reformed Presbyterian Church, Laramie
- Sovereign Grace Church Casper
- Trinity Bible Church, Powell
- Covenant Presbyterian Church (PCA), Lander
- Providence Reformed Church, Rock Springs
Orthodox Jewish Synagogues and Congregations in The American Redoubt States:
Try to find a truly conservative congregation. The word “conservative” (shamrani) has different meanings to different Jewish people! (Political conservatism is not always synonymous with religious conservatism and a traditional moral code.)
SurvivalBlog reader Yorrie in Pennsyvania mentioned in a recent e-mail that conservative Jewish preppers should seek out congregations that are: “…Torah knowledgeable and observant = Orthodox religiously or similar. Which usually overlaps with conservative politically. The more traditional end of the Conservative Jewish movement did not accept the liberal swing [that began in the 1950s] and is called Traditional, Conservadox (Halfway between Conservative and Orthodox), or sometimes Masorti (Hebrew for Traditional). There are Orthodox and Traditional Jews in Flathead County, Montana, and more formal congregations of the Chabad movement (a Torah Judaism movement with roots over 300 or more appropriately over 3,000 years).
Messianic Jewish Congregations in The American Redoubt States:
Many of these congregations tend to be small “home churches”. Make inquiries, locally.
Here is just one example of what you will find, in eastern Washington:
I’m sure that the foregoing will inspire a lot of correspondence. I don’t have plans to create a nationwide directory of prepper-friendly churches and congregations. (That would go beyond the scope of my project.) But I would appreciate your feedback on any of the churches and congregations listed.
I would also appreciate recommendations on specific Jewish and Messianic Jewish congregations inside of the Redoubt region.
Addenda (June, 2011):
The Yellowstone “Super Volcano”
I’m often asked about the Yellowstone supervolcano caldera. There have been plenty of sensationalistic news reports that have exaggerated the risk. More realistically, volcanologists tell us: “It could still be tens of thousands of years before the next eruption”. And, the “rapid uplift” that was widely reported in 2004 in 2005 has slowed, significantly.
Because of the prevailing winds, the anticipated volcanic ash fall is actually more of threat to eastern Montana, eastern Wyoming, the Dakotas and the Plains states than it its to anywhere west of Yellowstone. If you consider it a threat in the next few generations, then simply buy property that is at least 100 miles UPWIND of Yellowstone. If there ever is an eruption, anyone in northern Idaho or Northwestern Montana will only get ash fall that first circles the globe. It it will be people the Plains states that would get buried by several feet of ash.
As a bonus, locating UPWIND of Yellowstone will also put you upwind of Montana’s missile fields. It is noteworthy that Malmstrom AFB (which BTW is a locale in the second sequel to my novel “Patriots“) has dozens of strategic nuclear targets. If we are ever engaged in “nuclear combat toe to toe with the Rooskies”, each silo could be targeted for a nuclear ground burst. (It is ground bursts rather than air bursts that create significant fallout.) Again, I wouldn’t want to live downwind.
And as a further bonus, the climate is also much more livable west of the Great Divide. East of the Great Divide, the winters can be bitterly cold, but west of the Great Divide it is more mild.
But also consider: U.S. Game Changing Renewable – Geothermal Power. Note that the preponderance of the nation’s geothermal potential is in the Rocky Mountain States and the Intermountain West. The Redoubt just keeps looking better….
James Wesley, Rawles
About the Author:
James Wesley, Rawles is a former U.S. Army Intelligence officer and a noted author and lecturer on survival and preparedness topics. He is the author of the best-selling nonfiction book “How to Survive the End of the World as We Know It” and the novel “Patriots: A Novel of Survival in the Coming Collapse” He is also the editor of SurvivalBlog.com–the popular daily web journal for prepared individuals living in uncertain times.
Copyright 2011-2014. All Rights Reserved by James Wesley, Rawles – http://www.SurvivalBlog.com™ Permission to reprint, repost or forward this article in full is granted, but only if it is not edited or excerpted.
Note: The map image on this web page is my own creation and I personally hold the copyright. This image with resolution no greater than 36 DPI and a width no greater than 250 pixels is licensed under the Creative Commons Attribution-ShareAlike 3.0 License, with intended use on Wikipedia and similar reference web sites, for use in newspaper and magazine articles, in book reviews, and in book catalogs. The rights to any larger or higher resolution image is reserved and are granted only upon request.
Last week, we first touched on a topic which, in any non-banana republic, would be a far greater scandal than what Ryan Lochte may or may not have been doing in a Rio bathroom: namely, government corruption, falsification and potential fraud and embezzlement, which has resulted in the Pentagon being unable to account for up to $8.5 trillion in taxpayer funding.
Today, Reuters follows up on this disturbing issue, and reveals that the Army’s finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced. The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up.
As a result, the Army’s financial statements for 2015 were “materially misstated,” the report concluded. The “forced” adjustments rendered the statements useless because “DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions.”
For those wondering, this is what $1 trillion in $100 bills looks like.
Now multiply by 6.
This is not the first time the Department Of Defense has fudged its books: disclosure of the Army’s manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades. The report affirms a 2013 Reuters series revealing how the Defense Department falsified accounting on a large scale as it scrambled to close its books. As a result, there has been no way to know how the Defense Department – far and away the biggest chunk of Congress’ annual budget – spends the public’s money…. The Army lost or didn’t keep required data, and much of the data it had was inaccurate, the IG said.
In other words, it is effectively impossible to account how the US government has spent trillions in taxpayer funds over the years. It also means that since the money can not be accounted for, a substantial part of it may have been embezzled.
“Where is the money going? Nobody knows,” said Franklin Spinney, a retired military analyst for the Pentagon and critic of Defense Department planning, cited by Reuters.
The significance of the accounting problem goes beyond mere concern for balancing books, Spinney said. Both presidential candidates have called for increasing defense spending amid current global tension; the only issue is that more spending may not be necessary – all that is needed is less government corruption and theft.
An accurate accounting could reveal deeper problems in how the Defense Department spends its money. Its 2016 budget is $573 billion, more than half of the annual budget appropriated by Congress. The Army account’s errors will likely carry consequences for the entire Defense Department. Congress set a September 30, 2017 deadline for the department to be prepared to undergo an audit.
What’s worse is that the “fudging” of the numbers is well known to everyone in the government apparatus. For years, the Inspector General – the Defense Department’s official auditor – has inserted a disclaimer on all military annual reports. The accounting is so unreliable that “the basic financial statements may have undetected misstatements that are both material and pervasive.”
Not surprisingly, trying to figure out where the adjustments are has proven to be impossible.
Jack Armstrong, a former Defense Inspector General official in charge of auditing the Army General Fund, said the same type of unjustified changes to Army financial statements already were being made when he retired in 2010.
The Army issues two types of reports – a budget report and a financial one. The budget one was completed first. Armstrong said he believes fudged numbers were inserted into the financial report to make the numbers match.
“They don’t know what the heck the balances should be,” Armstrong said.
Meanwhile, for government employees, such as those at the Defense Finance and Accounting Services (DFAS), which handles a wide range of Defense Department accounting services, the whole issue is one big joke, and they refer to preparation of the Army’s year-end statements as “the grand plug,” Armstrong said. “Plug”, of course, being another name for made-up numbers.
Finally, how on earth can one possibly “not account” for trillions? As Reuters adds, at first glance adjustments totaling trillions may seem impossible. The amounts dwarf the Defense Department’s entire budget. However, when making changes to one account also require making changes to multiple levels of sub-accounts. That creates a domino effect where falsifications kept falling down the line. In many instances this daisy-chain was repeated multiple times for the same accounting item.
The IG report also blamed DFAS, saying it too made unjustified changes to numbers. For example, two DFAS computer systems showed different values of supplies for missiles and ammunition, the report noted – but rather than solving the disparity, DFAS personnel inserted a false “correction” to make the numbers match.
DFAS also could not make accurate year-end Army financial statements because more than 16,000 financial data files had vanished from its computer system. Faulty computer programming and employees’ inability to detect the flaw were at fault, the IG said.
DFAS is studying the report “and has no comment at this time,” a spokesman said. We doubt anyone else will inquire into where potentially trillions in taxpayer funds have disappeared to; meanwhile the two presidential candidates battle it out on the topic of tax rates when the real problem facing America is not how much money it draws in – after all the Fed can and will simply monetize the deficit – but how it spends it. Sadly, we may never know.
A Movement Of Staunch Conservatives And Doomsday-Watchers To The Inland North-West Is Quietly Gaining Steam
ASKED by an out-of-stater where the nearest shooting range is, Patrick Leavitt, an affable gunsmith at Riverman Gun Works in Coeur d’Alene, says: “This is Idaho—you can shoot pretty much anywhere away from buildings.” That is one reason why the sparsely populated state is attracting a growing number of “political refugees” keen to slip free from bureaucrats in America’s liberal states, says James Wesley, Rawles (yes, with a comma), an author of bestselling survivalist novels. In a widely read manifesto posted in 2011 on his survivalblog.com, Mr Rawles, a former army intelligence officer, urged libertarian-leaning Christians and Jews to move to Idaho, Montana, Wyoming and a strip of eastern Oregon and Washington states, a haven he called the “American Redoubt”.
Thousands of families have answered the call, moving to what Mr Rawles calls America’s last big frontier and most easily defendable terrain. Were hordes of thirsty, hungry, panicked Americans to stream out of cities after, say, the collapse of the national grid, few looters would reach the mostly mountainous, forested and, in winter, bitterly cold Redoubt. Big cities are too far away. But the movement is driven by more than doomsday “redoubters”, eager to homestead on land with lots of water, fish, and big game nearby. The idea is also to bring in enough strongly conservative voters to keep out the regulatory creep smothering liberty in places like California, a state many redoubters disdainfully refer to as “the C-word”.
Estimates of the numbers moving into the Redoubt are sketchy, partly because many seek a low profile. Mr Rawles himself will not reveal which state he chose, not wanting to be overrun when “everything hits the fan”. But Chris Walsh of Revolutionary Realty says growing demand has turned into such a “massive upwelling” that he now sells about 140 properties a year in the north-western part of the Redoubt, its heart. To manage, Mr Walsh, a pilot, keeps several vehicles at landing strips to which he flies clients from his base near Coeur d’Alene.
Many seek properties served not with municipal water but with a well or stream, ideally both, just in case. More than nine out of every ten Revolutionary Realty clients either buy a home off the grid or plan to sever the connection and instead use firewood, propane and solar panels, often storing the photovoltaic power in big forklift batteries bought second-hand. They also plan to educate their children at home. The remoter land preferred by lots of “off-the-gridders” is often cheap. Revolutionary Realty sells sizeable plots for as little as $30,000. After that, settlers can mostly build as they please.
Lance Etche, a Floridian, recently moved his family into the Redoubt after the writings of Mr Rawles stirred in him “the old mountain-man independence spirit—take care of yourself and don’t complain.” He chose a plot near Canada outside Bonners Ferry, Idaho, cleared an area with a view, put down gravel, “and they dropped the thing [a so-called “skid house”, transported by lorry] right on top of it”, he says—no permit required.
Some newcomers are Democrats keen to get back to nature, grow organic food or, in Oregon and Washington, benefit from permissive marijuana laws. Not all conservatives dislike this as much as Bonny Dolly, a Bonners Ferry woman in her 60s who says: “We don’t want liberals, that’s for sure,” and carries a .45-calibre handgun “because they don’t make a .46”. But lefties who move in and hope to finance tighter regulations with higher taxes often get the cold shoulder. Mr Walsh weeds out lefties from the start, politely declining to show them property, noting that they wouldn’t fit in anyway. This discrimination is legal, he says, because political factions, unlike race or sexual orientation, are not legally protected classes.
A Red Dawn:
Todd Savage, who runs Survival Retreat Consulting in Sandpoint, Idaho, works with the more usual sort of client: political migrants who rail against “morally corrupt” nanny government elsewhere. He does a brisk business helping them set up their food-producing fortress-homesteads. Staff train clients in defensive landscaping, how to repel an assault on their property with firearms, and the erection of structures “hardened” to withstand forced entry and chemical, biological, radiological or explosive attack.
Very few redoubters, however, wish to secede from the United States. The Confederacy’s attempt fared badly, notes Mr Rawles. He did, however, exclude the politically conservative but mostly flat Dakotas from the Redoubt because mechanised units could manoeuvre easily there. The same went for swathes of Utah, a state also left out because it has little water.
Purists have criticized him for including eastern Oregon and Washington in the Redoubt, since their larger liberal populations near the west coast dominate state politics. But he believes that the designation will quicken efforts in the eastern reaches to form new, freedom-minded states within a generation. As Mr Walsh puts it, easterners’ taxes get them “nothing back except for a bunch more rules” from socialist bureaucrats.
As for doomsday itself, redoubters differ. Mr Rawles considers the most likely cause to be a geomagnetic solar storm like the Carrington Event in 1859, when a coronal mass ejection from the sun generated sparks in telegraph lines, setting some buildings on fire. Had the nearly 3,000 transformers that underpin America’s grid existed then, a quarter of them would have burned up, according to Storm Analysis Consultants in Duluth, Minnesota. Some redoubters have signed up to receive a National Oceanic and Atmospheric Administration alert of any approaching solar storm like the big one that blew across Earth’s path on July 23rd 2012, missing the planet by days.
Alternatively, a nuclear explosion 450km above the central United States would produce enough high-energy free electrons in the atmosphere below to fry the grid and unshielded electronics in all states except Alaska and Hawaii. Conceivably, and unpredictably, North Korea or Iran might dare to launch such a missile.
A more likely catastrophe, Mr Rawles believes, would be a pandemic virulent enough to cause the breakdown of the national sewerage system as well as the grid. Mr Savage, for his part, worries most about a “slow slide into socialism” akin to “death by a thousand cuts, right, you just keep whittling away at liberty” by, for example, restricting gun sales. Some of his firm’s clients fear that bankers may deliberately collapse the financial system in order to introduce a single global currency.
The dominant view is simply that institutions and infrastructure are more fragile than most believe, says Dave Westbrook, an American Redoubt consultant homesteading north-west of Sandpoint. Videos sold by his firm, Country Lifestyle Solutions, show redoubters how to assess the viability of off-grid properties, plant orchards and tend crops. But paranoia is out there, says Ben Ortize, the pastor of Grace Sandpoint Church. Terrorism, and the widespread belief that President Barack Obama’s progressive agenda is naive, have fuelled strong support for Donald Trump in the Redoubt, which has a disproportionately large population of former policemen, firemen and soldiers. To calm them down, he tells his flock that the Bible advises them to trust in the Lord, rather than in shotguns and Tasers.
The area’s bad rap is sometimes undeserved. “Hate in America: A Town on Fire”, a recent Discovery Channel broadcast about Kalispell, Montana, attempted to conflate gun-lovers who recoil at big government with the few white supremacists shown at the start. In fact, there is much less racism in the inland north-west than in the South, says Alex Barron, founder of the libertarian Charles Carroll Society blog and self-proclaimed “Bard of the American Redoubt”. Some are quick to label ideological opponents as white supremacists, he says. Liberal bloggers have called him one; but Mr Barron is black.
The Redoubt does give refuge to more than its fair share of outlaws, whether ageing draft-dodgers or crooks on the lam. So says Mike “Animal” Zook, a bounty hunter in Spirit Lake, Idaho with a gunslinger image enhanced by his sidearm’s faux-scrimshaw handle. Pointing east from the Riverman Gun Works car park, he notes that a man can trek that way for nearly 150 miles and see nothing but majestic forest and game. Turn south, and the wilderness extends more than double that.
Wanted men can and do disappear here, Mr Zook says. Some pan for gold, hunt, trap game and quietly slip into a town once a year or so for supplies. Nationwide, perhaps only one in 1,000 indicted felons skip bail and run for it, he says, but the percentage is higher in the Redoubt and especially in Lincoln County, in nearby north-western Montana. That provides enough work, he says, for more than 2,000 fugitive-recovery agents—as bounty hunters are also known—who, like himself, operate at least part-time, typically as private contractors for bondsmen in the Redoubt. All in all, the frontier spirit of America’s Old West is still alive and well.
As you probably assumed anyway, due to Betteridge’s Law, we aren’t currently in a homeownership trough. The recent homeownership rate posting of 62.9% for the second quarter of 2016 is not the lowest in history, nor is it even the lowest in recorded US history. However, it is the lowest post in 51 years(!) – not since the third quarter of 1965 have we seen homeownership rates this low.
And why are we at DQYDJ bothering to look now?
Donald Trump, the Republican nominee for President sent this Tweet a couple days back:
The History of the Home Ownership Rate
A while back, we did a two-part deep dive into the history of the 30 year mortgage and the history of the (recorded) home ownership rate in America. That research dug up some very interesting information.
First, long-dated mortgages of 15, 20 and longer years started in the mid 1930s. Second, private mortgage insurance (which was mostly done in by the Great Depression) started up in 1957 with the Mortgage Guaranty Insurance Company.
Those innovations brought homeownership to the masses – no longer did you have to be able to afford a huge, short-term loan with a massive down payment. Extending Mr. Trump’s graph back to 1890 you can see the effect of the innovations (and of the Great Depression and Recession) on homeownership rates:
(Note that until the 60s there wasn’t as much resolution in the series – see our historical research for details).
The longer dated series lets us state a few interesting facts:
- The lowest homeownership rate since 1957’s PMI innovation was a 61.9% rate in 1960.
- The lowest homeownership recorded since 1890 was 43.6% in 1940 – in the midst of the Great Depression.
Why Is the Home Ownership Rate Dipping?
Oh, you won’t accept ‘people are renting more’ as an answer?
Yes, the run up in real estate prices in many areas of the country (so soon after the Great Recession!) is a huge factor. But, so too are the massive demographic changes underway in our country.
As we have pointed out many times, the millennials (of which I count myself as an older member) now makeup roughly 25% of the workforce. Millennials have different living arrangements than past generations – a greater propensity to live at home, a seeming desire to be free to change jobs (and areas!) more often, and, yes, more expensive housing options. That last point, of course, prices many millennials out of the market – renting makes much more sense when you look at the home prices in many metros in the United States.
Can It Change? Will We See the Rate Rise Again?
Yes – as of right now, I don’t see the drive towards renting (and living at home) to be a sort of permanent desire. Already there are countering trends – the so-called “Tiny House” movement one of them (and, yes, I have been searching for a place to name-drop it!). It’s safest, at this point in time, to assume millennials will tend to be similar to their parents – eventually leaving the city to marry, have kids and buy homes. You know, like yours truly.
However, we’re looking into the future here. Marriage is trending towards being an institution for older and older couples, along with kids. If these trends keep up, we might start to get into uncharted territory here – I’d love your input on whether you think homeownership rates will recover, or high-60s was an anachronism.
Will we see an increase in homeownership led by the millennials?
Bolstered by first-time home buyers, existing-home sales rose for the fourth straight month in June, reaching a nine-year high.
Sales of existing single-family homes, townhomes, condominiums and co-ops increased 1.1% to a seasonally adjusted annual rate of 5.57 million, up from May’s downwardly revised 5.51 million, the National Association of Realtors said Thursday. The June pace was the strongest since 2007.
First-time buyers made up 33% of those transactions, the biggest share in four years. That eased concerns that a shortage of affordable houses has been pushing entry-level buyers out of the market.
The median existing-home price also reached a new high as it surged 4.8% to $247,700 from a year ago, above the former peak of $238,900 in May.
June’s sales exceeded the highest forecast of economists polled by Bloomberg, 5.56 million.
Healthy job gains, record-high stock prices and near-record low mortgage rates stoked June’s positive showings, said Lawrence Yun, chief economist at the National Association of Realtors.
“The modest bump in June sales to first-time buyers can be attributed to mortgage rates near all-time lows and perhaps a hopeful indication that more affordable, lower-priced homes are beginning to make their way onto the market,” he said. “The odds of closing on a home are definitely higher right now for first-time buyers living in metro areas with tamer price growth and greater entry-level supply — particularly areas in the Midwest and parts of the South.”
The Midwest has the lowest median existing-home price among all regions, $199,900, followed by the South, at $217,400. The median price in the West climbed 7.2% from a year ago to $350,800.
Total available existing homes for sale dipped 0.9% to 2.12 million, now 5.8% below a year ago.
“Seasonally adjusted, the month’s supply of homes in June 2016 was the lowest since June 2005, indicating that inventory problems still plague home buyers,” said Ralph McLaughlin, Trulia’s chief economist.
Bank CEOs took home millions in pay and compensation in 2015
The list of top-paid executives in the U.S. banking industry offers few surprises, with one notable exception. The king of the compensation mountain doesn’t work for the most famous nor the biggest bank, but for an institution that’s little known on the national stage.
Kevin Cummings, chief executive of Investors Bancorp Inc. ISBC, +1.12% beat bigwigs at more dominant players in the industry to be the top-earning bank CEO in 2015, according to an analysis by S&P Global Market Intelligence.
Cummings took home roughly $20 million in salary and bonus last year to edge out John Stumpf at Wells Fargo & Co. WFC, +2.42% who received $19.3 million. Cummings saw his compensation package skyrocket 620% year-over-year after the regional institution in 2015 converted from a mutually held bank to a fully public company with a market capitalization of $3.4 billion, helping its stock surge 11% last year.
James Dimon of J.P. Morgan Chase & Co. JPM, +3.32% was third with total $18.22 million in compensation while Richard Fairbank of Capital One Financial Corp. COF, +2.60% in fourth place earned $18.01 million. Citigroup Inc.’s C, +5.09% Michael Corbat came in fifth with $14.60 million while Brian Moynihan of Bank of America Corp. BAC, +0.08% made a few bucks less at $13.72 million.
CEOs at Bank of New York Mellon Corp. BK, +2.54% Flagstar Bancorp Inc. FBC, +6.55% Northern Trust Corp. NTRS, +3.08% and PNC Financial Services Group Inc. PNC, +1.40% rounded out the remaining spots in the list.
S&P Global’s data showed only three of the 10 chief executives on the list getting pay cuts in a year that witnessed the financial sector significantly under perform the broader market. Financial stocks fell 3.5% in 2015 and are down nearly 9% this year as banks struggle to boost profitability in a low interest rate environment. The S&P 500 slid 0.7% last year and fell 1.1% year to date.
The CEOs’ multimillion compensation packages also highlight the gap in pay between those in the C-suite and the lowly bank employee toiling away in the front office. The average branch manager earned $54,820 a year while personal bankers made $35,937, according to PayScale.
Home ownership is at a 48-year low, driven in part by a shocking pattern of foreclosure that put 9.4 million out of their homes during the recent recession, according to a Harvard survey.
In its “State of the Nation’s Housing 2016,” Harvard said that “the U.S. homeownership rate has tumbled to its lowest level in nearly a half-century.”
Figures from the St. Louis Fed showed a home ownership rate of 63.5 percent. The last time it was lower was in 1967.
The Harvard Joint Center on Housing Studies report put a focus on foreclosures.
“A critical but often overlooked factor is the role of foreclosures in depleting the ranks of homeowners. Indeed, CoreLogic estimates that more than 9.4 million homes (the majority owner-occupied) were forfeited through foreclosures, short sales, and deeds-in-lieu of foreclosure from the start of the housing crash in 2007 through 2015,” said the report.
The report also noted that the number of people using at least 30 percent of their income for housing rose, as our Joseph Lawler reported this week. It said, “40.9 million Americans, both homeowners and renters, spend more than 30 percent of their income on housing, including 19.8 million who spend over half of their income for housing.”
At the same time, said Harvard, the drive for the American Dream has been braked by low incomes, higher prices and bad credit.
“Just as exits from homeownership have been high, transitions to owning have been low. Tight mortgage credit is one explanation, with essentially no home purchase loans made to applicants with subprime credit scores (below 620) since 2010 and a sharp retreat in lending to applicants with scores of 620–660 compared with the early 2000s. And given that the homeownership rate tends to move in tandem with incomes, the 18 percent drop in real incomes among 25–34 year olds and the 9 percent decline among 35–44 year olds between 2000 and 2014 no doubt played a part as well.”
Last night, our nation was attacked by a radical Islamic terrorist. It was the worst terrorist attack on our soil since 9/11, and the second of its kind in 6 months. My deepest sympathy and support goes out to the victims, the wounded, and their families.
In his remarks today, President Obama disgracefully refused to even say the words ‘Radical Islam’. For that reason alone, he should step down. If Hillary Clinton, after this attack, still cannot say the two words ‘Radical Islam’ she should get out of this race for the Presidency.
If we do not get tough and smart real fast, we are not going to have a country anymore. Because our leaders are weak, I said this was going to happen – and it is only going to get worse. I am trying to save lives and prevent the next terrorist attack. We can’t afford to be politically correct anymore.
The terrorist, Omar Mir Saddique Mateen, is the son of an immigrant from Afghanistan who openly published his support for the Afghanistani Taliban and even tried to run for President of Afghanistan. According to Pew, 99% of people in Afghanistan support oppressive Sharia Law.
We admit more than 100,000 lifetime migrants from the Middle East each year. Since 9/11, hundreds of migrants and their children have been implicated in terrorism in the United States.
Hillary Clinton wants to dramatically increase admissions from the Middle East, bringing in many hundreds of thousands during a first term – and we will have no way to screen them, pay for them, or prevent the second generation from radicalizing.
We need to protect all Americans, of all backgrounds and all beliefs, from Radical Islamic Terrorism – which has no place in an open and tolerant society. Radical Islam advocates hate for women, gays, Jews, Christians and all Americans. I am going to be a President for all Americans, and I am going to protect and defend all Americans. We are going to make America safe again and great again for everyone.
The dollar extended its slide for a second day as traders ruled out the possibility that the Federal Reserve will raise interest rates at its meeting next
The currency fell against all of its major peers, depressed by tepid U.S. job growth and comments by Fed Chair Janet Yellen that didn’t signal timing for the central bank’s next move. Traders see a zero percent chance the Fed will raise rates at its June 15 meeting, down from 22 percent a week ago, futures contracts indicate. The greenback posted its largest losses against the South African rand, the Mexican peso and the Brazilian real.
“There’s a bias to trade on the weaker side in the weeks to come” for the dollar, which will probably stay in its recent range, said Andres Jaime, a foreign-exchange and rates strategist at Barclays Plc in New York. “June and July are off the table — the probability of the Fed deciding to do something in those meetings is extremely low.”
The greenback resumed its slide this month as a lackluster jobs report weakened the case for the Fed to boost borrowing costs and dimmed prospects for policy divergence with stimulus increases in Europe and a Asia. The losses follow a rally in May, when policy makers including Yellen said higher rates in the coming months looked appropriate.
The Bloomberg Dollar Spot Index declined 0.5 percent as of 9:31 a.m. New York time, reaching the lowest level since May 4. The U.S. currency slipped 0.4 percent against the euro to $1.1399 and lost 0.5 percent to 106.83 yen.
There’s a 59 percent probability the central bank will hike by year-end, futures data showed. The Federal Open Market Committee will end two-day meeting on June 15 with a policy statement, revised economic projections and a news conference.
“Until the U.S. economy can make the case for a rate rise, the dollar will be at risk of slipping further,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. The Fed’s “economic projections are going to be key, as well as Ms. Yellen’s news conference — if they were to sketch an even shallower path of rate rises next week, that would add fuel to the dollar’s selloff.”
Do you have outstanding debt from a federal student loan? If so, the chances are significant that you are behind on your payments or have not even tried to make any payments at all. As of the beginning of the year, there were approximately 22 million Americans with student loans — and, according to information from the Department of Education, only 12.5 million of them are current with their loan payments.
Around 3 million student loan holders are in some form of postponement on their debt. Through a deferment or forbearance, they have permission to delay their loan payments due to a hardship such as unemployment or other financial emergency. Approximately $110 billion in student loan balances are in some form of postponement.
Another 3 million more student loan borrowers were delinquent, meaning they were between one month and a year behind on their loans. 3.6 million borrowers are at least a year behind on their payments and are considered to be in default. Government officials are concerned that many of the borrowers in default do not intend ever to attempt to pay back their student loans.
The combined balance in delinquent and defaulted loans is approximately $122 billion, meaning that around $232 billion of the over $1.2 trillion student loan portfolio is in some form of distress. Other types of loans with traditional banks would not tolerate such a ratio — but what bank would loan money without credit checks, cosigners, or any evidence that the loan will ever be paid back? Essentially, that’s how student loans work. The government also has no collateral; they cannot repossess your education (yet).
There is at least some silver lining, as a 43% non-repayment rate represents an improvement over last year’s rate of 46%. The Wall Street Journal attributes much of the change to programs that allow some borrowers to lower their student loan payments by connecting them to a percentage of the borrower’s income (also known as income-driven repayment). The number of borrowers taking advantage of these programs nearly doubled over the past year to 4.6 million.
Fortune notes that the Department of Education has blogged that those who do not pay back federal student loans will not be arrested, but they will suffer problems in their financial future and will certainly have difficulties establishing good credit. Unfortunately, evidence shows that some borrowers may not care. The attitude may be that the government will eventually write off these loans or that the potential punishments are not worth a repayment effort compared to other priorities.
Data from student loan servicer, Navient Corp. shows that the average attempts to reach borrowers in delinquency are between 230 and 300, or more than once every other day. Regardless of format — calls, letters, text messages, and e-mails — 90% never respond. Over half never even attempt to make a payment prior to default.
Income-driven repayment is the preferred compromise path that allows repayment without punishing those who legitimately cannot find work and afford repayment. There are four such programs offered through the Federal Student Aid website: REPAYE, PAYE, IBR, and ICR. If you find yourself among the 43%, consider income-driven repayment plans as a way to repay your debt without overburdening your budget.
If you are among those who are simply ignoring your obligation to repay, don’t. Just because you may never be jailed because of default does not mean that there are not consequences — and do not expect the government to bail you out. Even if the rules are changed, they may not be retroactive. Do the responsible thing and set up a program to pay as you can.
There was a small ray of hope just after the Lehman collapse that one of the most lamentable characteristics of US society – the relentless urge to build massive McMansions (funding questions aside) – was fading. Alas, as the Census Bureau confirmed this week, that normalization in the innate American desire for bigger, bigger, bigger not only did not go away but is now back with a bang.
According to just released data, both the median and average size of a new single-family home built in 2015 hit new all time highs of 2,467 and 2,687 square feet, respectively.
And while it is known that in absolute number terms the total number of new home sales is still a fraction of what it was before the crisis, the one strata of new home sales which appears to not only not have been impacted but is openly flourishing once more, are the same McMansions which cater to the New Normal uber wealthy (which incidentally are the same as the Old Normal uber wealthy, only wealthier) and which for many symbolize America’s unbridled greed for mega housing no matter the cost.
Not surprisingly, as size has increased so has price: as we reported recently, the median price for sold new single-family homes just hit record a high of $321,100.
The data broken down by region reveals something unexpected: after nearly two decades of supremacy for the Northeast in having the largest new homes, for the past couple of years the region where the largest homes are built is the South.
While historically in the past the need for bigger housing could be explained away with the increase in the size of the US household, this is no longer the case, and as we showed last week, household formation in the US has cratered. In fact, for the first time In 130 years, more young adults live with parents than with partners…
…so the only logical explanation for this latest push to build ever bigger houses is a simple one: size matters.
Furthermore it turns out it is not only size that matters but amenities. As the chart below shows, virtually all newly-built houses have A/Cs, increasingly more have 3 or more car garages, 3 or more bathrooms, and for the first time, there were more 4-bedroom than 3-bedroom new houses built.
In conclusion it is clear that the desire for McMansions has not gone away, at least not among those who can afford them. For everyone else who can’t afford a mega home or any home for that matter: good luck renting Blackstone’s McApartment, whose price incidentally has soared by 8% in the past year.
For those curious for more, here is a snapshot of the typical characteristics of all 2015 new housing courtesy of the Census Bureau:
Of the 648,000 single-family homes completed in 2015:
- 600,000 had air-conditioning.
- 66,000 had two bedrooms or less and 282,000 had four bedrooms or more.
- 25,000 had one and one-half bathrooms or less, whereas 246,000 homes had three or more bathrooms.
- 122,000 had fiber cement as the principal exterior wall material.
- 183,000 had a patio and a porch and 14,000 had a patio and a deck.
- 137,000 had an open foyer.
The median size of a completed single-family house was 2,467 square feet.
Of the 320,000 multifamily units completed in 2015:
- 3,000 were age-restricted.
- 146,000 were in buildings with 50 units or more.
- 148,000 had two or more bathrooms.
- 35,000 had three or more bedrooms.
The median size of multifamily units built for rent was 1,057 square feet, while the median of those built for sale was 1,408 square feet.
* * *
Of the 14,000 multifamily buildings completed in 2015:
- 7,000 had one or two floors.
- 12,000 were constructed using wood framing.
- 6,000 had a heat pump for the heating system.
* * *
Of the 501,000 single-family homes sold in 2015:
- 453,000 were detached homes, 49,000 were attached homes.
- 327,000 had a 2-car garage and 131,000 had a garage for 3 cars or more.
- 200,000 had one story, 278,000 had two stories, and 24,000 had three stories or more.
- 348,000 were paid for using conventional financing and 42,000 were VA-guaranteed.
The median sales price of new single-family homes sold was $296,400 in 2015, compared with the average sales price of $360,600.
The median size of a new single-family home sold was 2,520 square feet.
The type of foundation was a full or partial basement for 80% percent of the new single-family homes sold in the Midwest compared with 8% in the South.
109,000 contractor-built single-family homes were started in 2015.
While Wall Street looked upon today’s Durable Goods report with caution, noting the substantial beat in the headline print which was entirely as a result of a surge in non-defense aircraft orders (read Boeing) which soared by 65%, there was substantial weakness below the surface especially in the core CAPEX print, the capital goods orders non-defense ex-aircraft, which disappointed significantly, sliding 0.8% on expectations of a 0.3% rebound.
However, that was just part of the story. A far bigger part was missed by most because as always Wall Street was focused on the sequential change, and not on the absolute number.
As it turns out, the Department of Commerce decided to quietly revise all the core data going back all the way back to 2014. In doing so it stripped away about 4% from the nominal dollar amount in Durable Goods ex-transports, where the March print was slashed from $154.7 Billion to $148.3 Billion…
… and, worse, the government just confirmed what many had said for years, namely that CAPEX spending had been far lower than reported all along when it revised the capital goods orders non-defense ex-aircraft series lower by a whopping 6%, taking down the March print from $66.9 billion to only $62.4 billion, the lowest absolute number since early 2011.
So how did this downward revision to a critical historical series, and key driver of GDP, change the current GDP estimte? Well, according to the Atlanta Fed, “the GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.9 percent on May 26, up from 2.5 percent on May 17. The forecast for second-quarter real gross private domestic investment growth increased from -0.3 percent to 0.4 percent following this morning’s durable manufacturing release from the U.S. Census Bureau.“
Oddly not a word about the sharp revisions to the core data in main stream media.
The Senate is voting on whether to rein in President Obama’s outlandish regulation that uses $3 billion community development block grant money to coerce 1,200 recipient cities and counties nationwide to submit local zoning plans to the Department of Housing and Urban Development (HUD) to redress imagined discrimination based upon neighborhoods’ racial and income make-up.
Sen. Mike Lee (R-Utah) has an amendment that would actually prohibit this implementation of the Affirmative Furthering Fair Housing (AFFH) regulation, specifically stopping HUD from attaching zoning changes as a condition for receiving funding, and it deserves every senator’s support.
According to the Federal Register, AFFH directs municipalities “to examine relevant factors, such as zoning and other land-use practices that are likely contributors to fair housing concerns, and take appropriate actions in response” as a condition for receipt of the block grants. It’s right there in the regulation.
On the other hand, Sen. Susan Collins (R-Maine) offers an amendment which merely reiterates current law that the federal government cannot compel the local zoning changes, stating no funds can be used “to direct a grantee to undertake specific changes to existing zoning laws.”
As noted by the National Review’s Stanley Kurtz, “Federal law already forbids HUD from mandating the spending priorities of state and local governments or forcing grant recipients to forgo their duly adopted policies or laws, including zoning laws. AFFH gets around this prohibition by setting up a situation in which a locality can’t get any federal grant money unless it ‘voluntarily’ promises to change its zoning laws and change its housing policies in exactly the way HUD wants.”
Kurtz emphasizes the point: “This trick allows HUD to avoid formally ‘directing’ localities to do anything at all in order to get their HUD grants. But HUD gives localities plenty of informal ‘guidance’ that makes it perfectly clear what they actually have to do to get their federal grants.”
Therefore, even with the Collins amendment, AFFH will still require municipalities to “examine relevant factors, such as zoning and other land-use practices that are likely contributors to fair housing concerns, and take appropriate actions in response” as a condition for receipt of the block grants.
This is an attempt by the Senate to pretend to have acted to stop the federalization of local zoning decisions without actually doing so. The Lee amendment will remove the local zoning strings attached to the funding, plain and simple. The Collins amendment will not.
It is telling that President Obama is threatening a veto of an appropriations bill that has “ideological” content, when the President himself is exercising the power of the purse to compel his ideological vision on our nation’s cities, towns and counties through implementation of AFFH.
The Collins amendment, ironically, will enable and advance this ideological agenda — while offering constituents false comfort that it has been abated when it has not. Only the Lee amendment can stop this HUD driven transformation of our neighborhoods.
The House has already passed the Lee language twice with vocal support from across the Conference ranging from Representatives Paul Gosar to Peter King. Americans for Limited Government urges every senator to vote yes on the Lee amendment to the Transportation-HUD appropriations bill — and stop the federalization of local zoning policies once and for all.
Talk about a poisoned chalice. No matter who is elected to the White House in November, the next president will probably face a recession.
The 83-month-old expansion is already the fourth-longest in more than 150 years and starting to show some signs of aging as corporate profits peak and wage pressures build. It also remains vulnerable to a shock because growth has been so feeble, averaging just about 2 percent since the last downturn ended in June 2009.
“If the next president is not going to have a recession, it will be a U.S. record,” said Gad Levanon, chief economist for North America at the Conference Board in New York. “The longest expansion we ever had was 10 years,” beginning in 1991.
The history of cyclical fluctuations suggests that the “odds are significantly better than 50-50 that we will have a recession within the next three years,” according to former Treasury Secretary Lawrence Summers.
Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York, puts the probability of a downturn during that time frame at about two in three.
The U.S. doesn’t look all that well-equipped to handle a contraction should one occur during the next president’s term, former Federal Reserve Vice Chairman Alan Blinder said. Monetary policy is stretched near its limit while fiscal policy is hamstrung by ideological battles.
This wouldn’t be the first time that a new president was forced to tackle a contraction in gross domestic product. The nation was in the midst of its deepest slump since the Great Depression when Barack Obama took office on January 20, 2009. His predecessor, George W. Bush, started his tenure as president in 2001 with the economy about to be mired in a downturn as well, albeit a much milder one than greeted Obama.
The biggest near-term threat comes from abroad. Former International Monetary Fund official Desmond Lachman said a June 23 vote by the U.K. to leave the European Union, a steeper-than-anticipated Chinese slowdown and a renewed recession in Japan are among potential developments that could upend financial markets and the global economy in the coming months.
“There’s a non-negligible risk that by the time the next president takes office in January you would have the world in a pretty bad place,” said Lachman, who put the odds of that happening at 30 percent to 40 percent.
Investors also might get spooked if billionaire Donald Trump looks likely to win the presidency, considering his staunchly protectionist stance on trade and a seemingly cavalier attitude toward the nation’s debt, added Lachman, now a resident fellow at the American Enterprise Institute in Washington.
Uncertainty about the election’s outcome may already be infecting the economy at the margin, with companies and consumers in surveys increasingly citing it as a source of concern.
“The views expressed by the various candidates have weighed down” consumer confidence, said Richard Curtin, director of the University of Michigan’s household survey, which saw sentiment slip for a fourth straight month in April.
“It’s like a bicycle that’s going too slowly. All it takes is a little puff of wind to knock it over,” said Nariman Behravesh, chief economist for consultants IHS Inc. in Lexington, Massachusetts.
The economy still has some things going for it, leading Behravesh to conclude that the odds of a downturn over the next couple of years are at most 25 percent.
“Recoveries don’t die of old age,” he said. “They get killed off. And the three killers that we’ve had in the past don’t seem terribly frightening right now.”
The murderers’ row consists of a steep rise in interest rates engineered by the central bank, a sudden spike in oil prices and the bursting of an asset-price bubble. This time around, Fed policy makers have signaled they’re going to raise rates slowly, the oil market is still awash in excess supply and house prices by some measures remain below their 2007 highs.
“The expansion can continue for several more years,” Robert Gordon, a professor at Northwestern University in Evanston, Illinois, and a member of the committee of economists that determines the timing of recessions, said in an e-mail.
Consumers’ balance sheets are in much better shape than they were prior to the last economic contraction. Household debt as a share of disposable income stood at 105 percent in the fourth quarter, well below the 133 percent reached in the final three months of 2007.
Businesses seem more vulnerable. Corporate profits plunged 11.5 percent in the fourth quarter from the year-ago period, the biggest drop since a 31 percent collapse at the end of 2008 during the height of the financial crisis, according to data compiled by the Commerce Department.
History shows that when earnings decline, the economy often follows into a recession as profit-starved companies cut back on hiring and investment.
While he doesn’t see that pushing the U.S. into a recession, Levanon expects monthly payroll growth to slow to 150,000 to 180,000 over the balance of this year, compared to an average of 229,000 in 2015.
Though much of the weakness in earnings has been concentrated in the energy industry, companies in general have been struggling with rising labor costs as the tightening jobs market puts upward pressure on wages and worker productivity has lagged.
Peter Hooper, chief economist for Deutsche Bank Securities in New York, sees that leading to a possible recession a couple of years out as companies raise prices, inflation starts to accelerate and Fed policy makers have to jack up interest rates more aggressively in response.
“The slower they go in the near-term, the bigger the risk down the road,” he said of the Fed. “Looking out over the next four years, the chances of a two-quarter contraction are probably above 50 percent.”
Signs of a bust pile up.
Private-Equity firm Blackstone Group is planning to acquire Market Center in San Francisco, a 720,000 square-foot complex that consists of a 21-story tower and a 40-story tower.
The seller, Manulife Financial in Canada, had bought the property in September 2010, near the bottom of the last bust. In its press release at the time, it said that it “identified San Francisco as one of several potential growth areas for our real estate business and we are optimistic about the possibilities.” It raved that the buildings, dating from 1965 and 1975, had been “extensively renovated and modernized with state-of-the-art systems in the last few years….” It paid $265 million, or $344 per square foot.
After a six-year boom in commercial real-estate in San Francisco, and with near-impeccable timing, Manulife put the property on the market in February with an asking price of $750 per square foot – a hoped-for gain of 118%!
Now the excellent Bay Area real estate publication, The Registry, reported that Blackstone Real Estate Partners had agreed to buy it for $489.6 million, or $680 per square foot, “according to sources familiar with the transaction.” The property has been placed under contract, but the deal hasn’t closed yet.
If the deal closes, Manulife would still have a 6-year gain of nearly 100%. But here is a sign, one more in a series, that the phenomenal commercial real estate bubble is deflating: the selling price is 9.3% below asking price!
The property is 92% leased, according to The Registry. Alas, among the largest tenants is Uber, which recently acquired the Sears building in Oakland and is expected to move into its new 330,000 sq-ft digs in a couple of years, which may leave Market Center scrambling for tenants at perhaps the worst possible time.
It’s already getting tough
Sublease space in San Francisco in the first quarter “has soared to its highest mark since 2010,” according to commercial real estate services firm Savills Studley. Sublease space is the red flag. Companies lease excess office space because they expect to grow and hire and thus eventually fill this space. They warehouse this space for future use because they think there’s an office shortage despite the dizzying construction boom underway. This space sits empty, looming in the shadow inventory. When pressure builds to cut expenses, it hits the market overnight, coming apparently out of nowhere. With other companies doing the same, it creates a glut, and lease rates begin to swoon.
Manulife might have seen the slowdown coming
Tech layoffs in the four-county Bay Area doubled for the first four months this year, compared to the same period last year, according to a report by Wells Fargo senior economist Mark Vitner, cited by The Mercury News, “in yet another sign of a slowdown in the booming Bay Area economy.”
Announced layoffs in the counties of San Francisco, Santa Clara, San Mateo, and Alameda jumped to 3,135, from 1,515 in the same period in 2015, and from 1,330 in 2014 — based on the mandatory filings under California’s WARN Act. But…
The number of layoffs in the tech sector is undoubtedly larger, because WARN notices do not include cuts by many smaller companies and startups. In addition, notices of layoffs of fewer than 50 people at larger companies aren’t required by the act.
The filings also don’t take attrition into account – when jobs disappear without layoffs. “There is a lot of that,” Vitner explained. “When businesses begin to clamp down on costs, one of the first things they do is say, ‘Let’s put in a hiring freeze.’ I feel pretty certain that if you had a pickup in layoffs, then hiring slowed ahead of that.”
And hiring has slowed down. According to Vitner’s analysis of state employment data, Bay Area tech firms added only 800 jobs a month in the first quarter – half of the 1,600 a month they’d added in 2015 and less than half of the 1,700 a month in 2014.
“Employment in the tech sector has clearly decelerated over the past three months,” he said. “As job growth slows and the cost of living remains as high as it is, that’s going to put many people in a difficult position.”
It’s going to put commercial real estate into a difficult position as well. During the boom years, the key rationalization for the insane prices and rents has been the rapid growth of tech jobs. Now, the slowdown in hiring and the growth in layoffs come just when the construction boom is coming into full bloom, and as sublease space gets dumped on the market.
Here’s what a real estate investor — at the time co-founder of a company they later sold — told me about real estate during the dotcom bust. All tenants should write this in nail polish on their smartphone screens:
It was funny in 2000 because the rent market was still moving up. We rejected our extension option, hired a broker, and started looking around. As months went on, we kept finding more and more, better and better space while our existing landlord refused to renegotiate a lower renewal. We went from a “B” building to an “A” building at half the rent with hundreds of thousands of dollars of free furniture.
The point is that tenants are normally the last to find out that rents are dropping.
“All it takes is a couple of big tech companies folding and the floodgates open, causing the sublease market to blow up, rents to drop, and new construction to grind to a halt,” Savills Studley mused in its Q1 report on San Francisco. Read… “Market is on Edge”: US Commercial Real Estate Bubble Pops, San Francisco Braces for Brutal Dive