"The dark Horsehead Nebula and the glowing Orion Nebula are contrasting cosmic vistas. Adrift 1,500 light-years away in one of the night sky's most recognizable constellations, they appear in opposite corners of the above stunning mosaic.
Click image for larger size.
The familiar Horsehead nebula appears as a dark cloud, a small silhouette notched against the long red glow at the lower left. Alnitak is the easternmost star in Orion's belt and is seen as the brightest star to the left of the Horsehead. Below Alnitak is the Flame Nebula, with clouds of bright emission and dramatic dark dust lanes. The magnificent emission region, the Orion Nebula (aka M42), lies at the upper right. Immediately to its left is a prominent bluish reflection nebula sometimes called the Running Man. Pervasive tendrils of glowing hydrogen gas are easily traced throughout the region."
“What if this road, that has held no surprises these many years, decided not to go home after all; what if it could turn left or right with no more ado than a kite-tail? What if its tarry skin were like a long, supple bolt of cloth, that is shaken and rolled out, and takes a new shape from the contours beneath? And if it chose to lay itself down in a new way; around a blind corner, across hills you must climb without knowing what's on the other side; who would not hanker to be going, at all risks? Who wants to know a story's end, or where a road will go?” ~ Sheenagh Pugh
“Poetry is not only dream and vision; it is the skeleton architecture
of our lives. It lays the foundations for a future of change,
a bridge across our fears of what has never been before.”
"Yes, the times change with the tides; yet the tales, like the surf, sound on in familiar perpetuity and with steady repetition. In the modern era, during the great clash of civilizations currently underway, there will be no new, great and ghastly crusades. Only resistance or surrender. In America, just as her tide recedes from the world, in the end it may become Man overboard, and every man for himself. The sun rises. The sun sets.
As sand through an hour-glass, or waves rolling over every shore, so too, do our journeys mark passageways through time; and, in the end, our navigation may, indeed, depend upon guidance, like stars, shining down from heaven upon what we know, over the decisions we make; on the destinies we choose. And, of course, there will be losses incurred during the storms.
So, we raise our sails and pray for the prosperous winds of Providence to guide our ways and guard our lives through uncharted seas.Perhaps it’s true that fortune finds and favors the faithful above all. Even still, those who believe, and those who doubt, and those who sleep, all do drift and blow by the same breeze. The winds of change are on us. They’ve always been here, steadfast and old as time itself. Like the earth. Nothing new under the sun."
"Who needs Russia when the Tweety-Bird-in-Chief is hacking his own presidency into a global joke? Or at least it might be a joke if the USA weren’t such a menace to international order, and to itself, by the way. Interestingly, the 25th amendment allows for the removal of a president from office on account of incompetence or disability, but not for being an embarrassment to the nation.
They may come after him anyway with the 25th, especially as the financial system unravels later this year, because this time, unlike 2008-9, central bank interventions will not avail to rescue the faltering money system from nine years of previous central bank interventions. All it takes is for the “liquidity” flows to seize up and before you know it, there’s no food in the supermarkets because everything in our just-in-time economy is exquisitely calibrated to the sure expectation of getting paid, and when that goes, it all goes.
Then the question arises: well, can’t you just re-start the liquidity flows? Not when the process requires another abracadabra magic act of summoning X-trillions of dollars out of absolutely nothing when the previous X-trillions created out of absolutely nothing are rushing at warp speed into the black hole of deleveraging because it has been discovered that the “loans” they were based on can never be paid back, not in this universe or any number of universes like it. In a word, they’re worthless.
Deleveraging is the polite term economists give to your net worth rapidly evaporating. Liquidity is the polite term for cash money and things denominated in them that can readily be converted into cash money. The problem with the kind of liquidity-creation solution to deleveraging is that it rapidly leads to money itself becoming worthless.
The preview of coming attractions is currently playing out in Illinois - soon to be joined by Connecticut, California, Kentucky, and many other bankrupt states. Illinois is dead broke. It can’t pay the contractors who fix things like roads and storm drains, and supply food to its prisons. It’s over $200-billion deep in pension obligations that will never be honored. It’s Medicaid system is a shambles. It doesn’t even have the cash-on-hand to pay lottery winners (what happened to all the cash paid into the lottery by the suckers who didn’t win, which is supposed to pay off the winners?). The state legislature hasn’t passed a budget in three years.
The governor and the mayor of Chicago and everybody else nominally in charge have no idea what they’re going to do about it. Think the federal government is going to just step in and save the day there? They’d have to bail out every other foundering state and that’s just not going to happen, especially with that same federal government about to run out of cash money itself, with no resolution of the debt ceiling controversy that might allow it to even pretend to borrow more money by issuing treasury bonds that are instantly bought by the Federal Reserve - which, of course, is not an official government agency but a private banking consortium contracted to manage the nation’s money.
Do you begin to see the outlines of the clusterf**k rising like a bad moon over the harvest season of 2017? The American people, by and large, have no more idea how false and fragile the financial arrangements of the nation are than the average eight-year-old has about why the re-po squad is towing away Daddy’s Ford-F150. We’re just doing what we always do: gittin’ our summer on. Breaking out the potato salad and the Bud Lites - at least those who have enough mojo left in their MasterCards to charge the party supplies.
An awful lot of Americans must be maxed out, though, people who actually used to work at things and get paid for it. Each one of them is a walking Illinois now, facing each dawning day with a bigger load of problems, more things they can’t pay for, and moving closer to the dreadful day when everything is gone, every chattel, every knickknack, the very roof over their head, and most particularly the belief that they live in a fair and decent society.
So, I wonder what we’re going to do with a Tweety-Bird-in-Chief in the White House when this deal goes down. Stresses and tensions are out there a’buildin’ and the time for being a nation of feckless idiots is drawing to a close. The sad thing is: it wasn’t even fun while it lasted.”
“The Latest Economic Numbers Scream Civil War and World War III”
by Common Sense
“The news headline should be, today, that Senator Dick Durbin and Bernie Sanders had direct contact with Hodgkinson prior to his assassination attempt upon the Republican congressman at the Congressional baseball team practice according to the AP. Durbin is refusing to make his email contacts with Hodgkinson public. However, as dramatic as is this information is, the real news is the economy.
Global debt levels have surged to an insurmountable level.For the only time in human history, the planet has recorded a whopping$217 trillion in the first quarter of the year. Since these are raw numbers, most will not appreciate the gravity of the world’s economic situation. The adding of $217 trillion dollars of debt in the first 90 days of 2017, represents327%of the world’s annual economic output, otherwise known as the GDP. These figures represent the economic research of the Institute of International Finance (IIF).
The Path to Civil War: If one is a DUD (i.e. Dumb Until Death as Steve Quayle puts it), please allow me to present this very bleak picture in another light. If you make $100,000 per year, but you are acquiring debt that equals $327,000 in the same year, what will happen to your family economically? It is safe to say that your first casualty would be your house and the second would be your car. The new bankruptcy laws would prevent you from erasing your debt and you would be put on a permanent repayment plan. In other words, extreme austerity would be imposed upon you.
Let’s take that surging debt and apply it to your state, say the state of Illinois which is totally insolvent. I recently interviewed economist Robert Kudla about this dire situation, if the $327% debt to income ratio visits your state, which it is beginning to. The state would default on its obligations and stop paying. In the meantime, under the new bankruptcy laws, a judge could order the citizens of that state, say Illinois, to be put on a payment plan. This would represent permanent serfdom because there is absolutely no hope of repaying the debt. This scenario would represent permanent financial enslavement and could accurately be said to represent the biggest financial bailout of all the bailouts in history.
I asked Bob Kudla, with regard to his example, why would someone not just leave Illinois and go to a state that is not as debt ridden? He replied that by this time, Illinois would likely have reciprocity agreements with every other state. Let’s reduce this scenario to the lowest common denominator. When this 327% bto income ratio is fully realized, every welfare payment, pension, 401K, state-owed debt and virtually every source of income would be subject to partial or full confiscation. And the people would say “It’s time for a revolution!” Exactly, that is the point, and this would be the goal of a Deep State that has nowhere to run and nowhere to hide because of its exposed criminality.
Implications for the Emerging Economies Are Devastating: In a desperate attempt by emerging economies to keep up with the Jones’, these countries have increased theirborrowing by $3 trillion to $56 trillion according to the IIF. This equals a staggering 218% of their combined economic output and this debt is being added to by 5% per year, meaning that in 10 years, the economic value of these countries would have declined by 50% due to this one condition and this does not account for the great wealth destroyer, the inflation rate.
China Pushed to Hyperinflation, Will War Follow? The biggest contributor to the world’ debt to income figure is undoubtedly China. According to the IIF, China has added $2 trillion in debt over the first quarter of 2017. The International Monetary Fund (IMF) told China to control its ballooning debt, describing it as unusually high for a developing economy. China’s debt now represents 260% of its GDP.
According to the IIF, European economies have cut debt levels by $2 trillion inthe past 12 months and many economic leaders accepted this as good news and our economic problems are in the past. Not so, says the experts. And if you are an American, the news is not good for the you as the US is approaching $20 trillion, which represents 10% of all global debt.
At least the Chinese are trying to do something about their situation. They are getting their people to invest in commodities and not in currency based instruments. I joked with Kudla that the Chinese should just sell their people gold. He wasn’t laughing at that comment. The sad part of the comment is that there is not enough gold to cover this massive and continually growing debt. I have concluded that those who are in gold can somewhat sidestep the coming freight train. However, you will, at some point have to fight to keep your gold from your neighbors as well as your government.
The US Is No Longer Immune to Its Bad Decision Making: If you, as an American worker are solvent today and feel as if you are cheating the downward economic trend, your day of reckoning is soon approaching as the IIF came to the following conclusions:
“Rising debt may create headwinds for long-term growth and eventually pose risks for financial stability…”
“In some cases, this sharp debt build-up has already started to become a drag on sovereign credit profiles, including in countries such as China and Canada…”
By the way, 70% of the debt is in dollars. This may prove comforting in that when the US and its state government’s default on its debt obligations, the rest of the world has already crashed. In my humble opinion, the world will be embroiled in civil war or world war, or both.
The US and the EU could increase interest rates in the near future in a futile effort to cover the debt, in fact, the Federal Reserve is doing just that. However, borrowers will have a hard time repaying debt because it is a bottomless pit. What debt you ask? How about the student loan debt of $1 trillion dollars which is crippling the young generation. How about the car loan debt which extends loan payments out to seven years with almost no credit checks (do you remember the housing bubble of 2007?). And then of course, there is the monster we know as hyperinflation as the world’s fiat currencies begin to explode. thus making it more expensive for borrowers to repay.
Conclusion: As you read the following please keep in mind that the entire estimated GDP of the planet is less than $70 trillion.
The United States government takes in about $2 trillion dollars per year. However, we have a national deficit of $20 trillion per year and that is the good news. We have an unfunded liability of $240 trillion dollars (i.e. Medicare, Social Security, etc) and the 800 pound gorilla in the room is the credit swap derivatives debt of $1.5 quadrillion dollars with an annual interest rate of $505 trillion per year.You do not need a calculator to tell you what is coming.
How will you survive? There is no guarantee. However, one can increase their chances by acquiring food, water filtration, guns, ammunition, gold and medicine.”
"We Are Witnessing The Development Of A Perfect Storm"
by Robert Huebscher
"Robert L. Rodriguez was the former portfolio manager of the small/mid-cap absolute-value strategy (including FPA Capital Fund, Inc.) and the absolute-fixed-income strategy (including FPA New Income, Inc.) and a former managing partner at FPA, a Los Angeles-based asset manager. He retired at the end of 2016, following more than 33 years of service. He won many awards during his tenure. He was the only fund manager in the United States to win the Morningstar Manager of the Year award for both an equity and a fixed income fund and is tied with one other portfolio manager as having won the most awards. In 1994 Bob won for both FPA Capital and FPA New Income, and in 2001 and 2008 for FPA New Income. The opinions expressed reflect Mr. Rodriguez’ personal views only and not those of FPA. I spoke with Bob on June 22:
RLR: There will be a reversion to the mean. We are in a very difficult and challenging time for active managers, and in particular, value style managers. Many of these managers are fighting for their economic lives. Given that I am no longer involved professionally in managing money, I believe the standards in the industry are being compromised; monetary policy has so totally distorted the capital markets. You are now into the eighth year of a period that is unprecedented in the likes of human history.
The closest policy period to what we have now would have been between 1942 and 1951, when the Fed and Treasury had an accord to keep interest rates low. Interest rates were artificially held lower to help finance the World War II effort. With the renewal of inflation after the war, a policy war developed between the Treasury and the Fed on the continuation of a low interest rate policy. The Treasury-Fed of 1951 brought this period to a close. But that is the only time we’ve had a period of nine years of manipulated, price-controlled interest rates.
This was a historical policy I discussed with my colleagues upon my return from sabbatical in 2011: what could unfold were controlled, manipulated and distorted pricing that could disrupt the normal functioning of the capital markets. The historical cycles that Jeremy would be referring to that entailed a reversion to the mean could be distorted, for a period of time, by this type of monetary policy action. But I do not believe the economic laws of gravity have been permanently changed.
RB: At a Grant’s Conference last year Steven Bregman asserted that indexation in general and ETFs in particular were factors in the under-performance of active managers and are potentially a bubble. Are you familiar with his work and what are your thoughts on ETFs? What is driving the flow of mutual fund assets to passive strategies and what can or should fund companies do in the face of this trend?
RLR: I go back to a speech I gave in 2009, 'Reflections and Outrage,' and buried within that speech is a section that said that if active managers did not get their act together then the likelihood would be that passive strategies would continue to take market share. When you have a market that is distorted by zero interest rate policy, David Tepper said it very well many years ago, “Well, you’ve got to ride it.”
It’s a rocket ship that’s going up. If you are fully invested in the right areas, you have a shot at out-performing. However, if you are an active manager who has a valuation discipline, given the valuation excesses in the capital markets now and that have been developing for the past several years, then an elevated level of liquidity would be held, if you were allowed to do so. As such, you will likely underperform the market.
Active managers have not demonstrated a value-add to an appreciable extent over the last 20 years. When I look back at what happened prior to 2000, if an active growth stock manager could not see the most extraordinary distortion and elevated, speculative market in history, when will they? In the lead up to the 2007-2009 financial crisis, many value-style managers did not cover themselves in glory either. If you looked at what their major stock ownership concentrations were, they were very much in large banks and various types of financial institutions that were going to get crushed in the credit downturn. If they couldn’t acknowledge or identify the greatest credit excess in history, when will they?
I’m picking on both growth- and value-style managers for missing two of the great bubbles in history. This miss led to capital destruction. Now we have a clueless Fed, in my opinion, that has never known what a bubble is beforehand. It is accentuating one that has been developing as a result of its policy insanity of QE. Markets are going straight up predicated on it.
The public looks at these outcomes and says, “Why should I pay higher fees to managers who can’t outperform or can’t even identify a major speculative blow off. I might as well be fully invested. I might as well be in an ETF or index fund.”
Thus, since 2007, indexing or passive activities have risen from approximately 7% to 9% of total managed assets to almost 40%. As you shift assets from active managers to passive managers, they buy an index. The index is capital weighed, which means more and more money is going into fewer and fewer stocks.
We’ve seen this act before. If you didn’t own the nifty 50 stocks in the early 1970s, you underperformed and, thus, money continued to go into them. If you were a growth stock manager in 1998-1999 and you were not buying “net” stocks, you underperformed and were fired. More and more money went into fewer and fewer stocks. Today you have a similar case with the FANG stocks. More and more money is being deployed into a narrower and narrower area. In each case, this trend did not ended well.
When the markets finally do break, as they always have historically, ETFs and index funds will be destabilizing influences, because fear will enter the marketplace. A higher percentage of assets will be in indexed funds and ETFs. Investors will hit the “sell” button. All you have to ask is two words, “To whom?” To whom do I sell? Index funds and ETFs don’t carry any cash reserves. The active managers have been diminished in size, and most of them aren’t carrying high levels of liquidity for fear of business risk.
We are witnessing the development of a “perfect storm.”
RB:The Wall Street Journal has reported that central banks from Switzerland to South Africa are investing their reserves in equities. How should investors respond to the participation in the price discovery system by players that can print money and may not be performance-driven?
RLR: The last thing I ever wanted to do as a professional was allocate capital to areas that government was buying. With governmental-driven decisions there are virtually no penalties for bad decision making. Look at the rank stupidity of Dodd-Frank, or Paulson, Bernanke, and Greenspan. They were clueless before each of the last crises. They helped drive a system off the tracks. What penalty have they paid? None! They get to keep their pensions. But when you have central banks deploying capital and their cost of money is zero, they destroy the capital-asset pricing mechanism; they destroy comparability; the distortions continue. As a dedicated contrarian, the last place I want to invest money is where governments are deploying the capital because they are so totally distorting the market.
RB: How did the discipline of value investing as you practiced it at FPA, change over the course of your career, particularly since the financial crisis?
RLR: It’s an interesting question and I’ve asked myself that many times. The markets moved more slowly prior to this century – the ebbs and flows, the decision-making and the conveyance of information. With the advance of electronics and the internet, the speed of dissemination of news accelerated. I don’t believe that judgments have improved; just the speed has accelerated and the time frames of patience have shortened.
I bet my entire business in the spring of 1998 when for the prior 11 or 12 years I ran my mutual fund, the FPA Capital Fund, on fumes, with 1% to 2% cash and sometimes even less than 1%. Had you held liquidity, with short-term bond yields in the high-single to double-digits, you would have underperformed the stock market by anywhere from 900 to 1,100 basis points. By 1998 the consultant’s mantra was to be “fully invested.”
I went out in the spring of 1998 arguing that the equity market was becoming excessively priced, and it continued to do so. I sought permission to move my liquidity limits from 7% to 10% which were the typical maximums, to upward of 30%. I had to fight every client on that. By the spring of 2000, without losing any money and avoiding the carnage, I took a little bit over a 50% reduction in my assets under management. I got fired. In 2007-2009, I did far more preparation and communication prior to that crisis and entered it with 45% cash.
In the first phase of a debacle like what went on in the financial crisis, it doesn’t matter whether you are a virgin or are the opposite. When they raid the entertainment house and you happen to be a person walking by, just out of the church right next door, you get caught with all of the people there.
In the aftermath the police discover, “Oh, you shouldn’t be here.” Well, it’s the same way in a crash; virtually everything gets hit. Then in the second and third stages, the real values start to unfold and you get a greater differentiation. That is what happened with my fund between 2007 and 2009 and subsequently.
A cash level of 45% was a real tough strategy for clients to handle. I had one client say, “Please stay fully invested for my account and just do your thing with the others.” I said, “No, the price you ask me to pay is too high. By being fully invested managing your money, I will contaminate my thinking, which will negatively affect my other clients. I’m sorry, that’s a price too high to pay.” I said, “Where do you want me to return the money?” He said, “Let me think about it.” The next day his response was, “Okay, you’ve got flexibility.” But I still took over a 50% hit in redemptions during that crisis.
Looking back at these two prior major cycles, it is far more difficult for a value manager to hold liquidity today in light of the policies that are being deployed. These are the worst fiscal and monetary policies in human history. If I were still professionally managing money, despite my background of pain-and-suffering from being redeemed, my liquidity allocation would be north of 60% today.
RB: So-called “smart-beta” products have become very popular, particularly those that incorporate a quantitatively-driven value strategy based on the Fama-French factor models. For investors that want a value-oriented portfolio, what concerns should they have with these strategies?
RLR: I have never seen a quantitative strategy succeed longer term. They are predicated on models. The models are predicated on history. When history changes, they have to develop a new factor model.
We witnessed this in the last cycle. There was an article in the WSJ quoting a quant manager who said on a Wednesday, we had experienced a 1-in-10,000 year event. On Thursday, we had a 1-in-10,000 year event. On Friday we had a 1-in-10,000 year event. A former colleague wrote an email that weekend that said, “I have a quick question to ask. On Monday, are we safe for the next 30,000 years?”
All of these strategies are meant to enhance or give an essence of how you are going to try and minimize risk and enhance return. When you are in an environment where the lead entity, the Federal Reserve, has its foot on the scale and is distorting the information coming out of the capital markets, where interest rates can go to zero, what is the proper hurdle rate for budgetary or capital allocation decisions? These actions distort the price comparison or discovery process in the capital asset-pricing model. This is highly disturbing.
By the way, I wrote a piece in 2008 before the Fed even knew they were going to balloon their balance sheet. It said they would have to increase the balance sheet by at least a trillion to a trillion and a half. They hadn’t got to that realization yet.
After 45 years of watching the Fed, the only Fed chairman that was worth spit was Paul Volcker. The last great central banker that we had in the last 110 years other than Volcker was J.P. Morgan. The difference is, when Morgan tried to contain the 1907 crisis, he wasn’t using zeros and ones of imaginary computer money; he was using his own capital. As long as you have anointed centralized bureaucratic decision makers like the Federal Reserve, that in many ways is similar to the concentrated decision making structure of the former Soviet Union, decisions will be late and generally wrong. The Fed is a large organization and like all large organizations, there are internal pressures where they try to come to a consensus, and so they do. This is not how you make your greatest decisions.
RB: If there is one piece of investment advice you would offer to a young professional embarking on a career now, what would that be?
RLR: I will give the same advice that I got when I was a very young professional back in 1973. I was two years into the field and a gentleman spoke before my investment class. After everybody had walked out, I walked up to Mr. Munger and I asked him, “Sir, if I could only do one thing that would make myself a better investment professional, what would you recommend?” He responded, “Read history, read history, read history.” I have done that over the years. Had you read about the banking crisis of 1907 and what preceded it in the 1890s, you would have recognized it in a form in 2007.
RB: If there is one piece of management advice that you could offer to that same person, what would that the?
RLR: You must have two things – discipline and integrity. Compromise either and you will fail. That’s true in all walks of life.
RB: Yes, but it’s very easy to use the justification that this time is different.
RLR: The world has changed. I gave a speech in 2001 to some pension advisors. I said, “Look at you people out there.” I hadn’t shown them my chart yet but I said, “Look at what we have just gone through. We had the greatest, the highest level of computerization in the history of man, the most timely acquisition to information, the highest percentage of advanced degreed professionals and college graduates in the field, and we got an outcome no different than 1974, 1929, 1907. There is something more here going on.”
Then I held up two hand-written stick figures – I was not a good artist. They were cows and they were talking to one another. One cow said to the other, “Glad we’re not part of the herd.” The other cow said, “Yea.” The next exhibit was an aerial shot. It showed the two cows are in a ravine, so they can only see themselves. But all around them is the herd. I looked out and said, “People, whether you realize it or not, you are part of the herd. All you have to understand is one word, now let’s say it all together. Moo.” What a way to influence friends and make new clients.
RB: How are you investing your personal assets?
RLR: I am at my lowest exposure to equities since 1971. They represent less than a fraction of one percent. Liquidity is north of 65%, all in Treasury-type securities, nothing beyond a three-year term. I do not trust what is going on fiscally or monetarily, and I’ll circle back on this in a moment. The balance is in rare fully paid-for physical assets.
Circling back, after I stepped down from daily money management at the end of 2009, I took a sabbatical. One of my goals was to meet a gentleman by the name of David Walker, the former comptroller general of the U.S. He wrote a book called 'Comeback America' that I read in January of 2010. I sent my review to Dave. Two days later Dave called me and said, “My name is Dave Walker. Is this Bob Rodriguez? If so, I want to thank you for your review.” That’s how we came to know one another. I’d used his work for over 10 years. For the next three and a half years I was a sponsor of his program, Comeback America. He closed it down in 2013, a complete unmitigated failure.
Think about the budgetary battles of 2011; the only thing that was cut was defense. Two thirds of the expenditure cuts that were going to get controlled under the system would not occur until after 2016. Funny how that works. In the presidential debates, only one candidate used a word that I think has now left the English language, “sequester.” That was Bush and it was to eliminate sequestration to raise defense spending.
The 2016 election was one of the most important elections in the last 80 years. Back in 2009 I said if we do not get our economic house in order sometime between 2014 and 2018, we could see a crisis of equal or greater magnitude than the 2007-2009 crisis. I also argued that we would have a substandard recovery that would be no better than 2% real GDP growth for as far as the eye can see. Productivity and capital spending would be substandard. All of those have played out.
Here we are in 2017. I have seen absolutely nothing that would give me any degree of confidence that Washington will get its act together. We are into a period of expanding deficits. We are hitting a time where the entitlements are worsening in terms of their funding status. We are in a decade that is unprecedented from anything that we’ve seen before with monetary policy and fiscal policy.
Why on Earth should I allocate capital into a system where the scales are completely manipulated, price discovery is distorted, and the Fed doesn’t have a clue what’s going on? They’ve missed every economic forecast for the last nine years straight. Why would anybody pay any attention to what those people are doing? I have confidence in one thing. The Fed will blow it.
My thoughts are very much analogous to those of Lacy Hunt. Where Lacy and I part company is what happens after the deformation hits. He would argue that we will be in a dis- or deflationary period for an extended period of time; therefore, you should own 30- and 20-year Treasury bonds.
I’m not so sure about that scenario. It occurred in Japan because it has a very cohesive society. That is not the case in the United States or in Europe. Our patience will be far shorter. At some point, in no more than one to two years, the Fed would likely panic and panic big time, and we will see QE on steroids. We will see monetary inflation. Lacy and I have a similar view. But the really big question is what the outcomes will be on the other side of this mess. Both of us could be very right, or very wrong, or partially in between.
I am managing my estate in a hedged fashion because what we are going through is without any precedent in human history. How can anybody have confidence that their particular view is the right view?”
‘It is our will that this state shall endure for a thousand years.’
– Adolf Hitler…10 years before the Reich was destroyed
‘Long-Term Capital Management’
– Hedge fund headed by Nobel Prize winner,
bet against things that ‘couldn’t happen in a billion years’…
Four years later, the fund blew up
‘I have returned from Germany with peace for our time.’
– Neville Chamberlain…11 months before the start of the Second World War
‘Argentina Plans to Offer 100-Year Bond’ (priced to yield only 7.9% until 2117)
– Bloomberg, 19 June, 2017
"Ring the bell. Open up the gates. Unleash the hounds of hell. Here’s Janet Yellen’s latest contribution to the Famous Last Words club: ‘Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.’
This must be what the gods have been waiting for… What bread doth Ms Yellen eat? What ale doth she drink? What is she thinking? The weather has been so nice Ms. Yellen is building a house without a roof!
Stacking blocks of wood: We don’t know any more than the Fed chief about when the next crisis will come. But we’re not fool enough to tempt fate. And not vain enough to think we could do anything to stop it. Financial crises come around from time to time. Generally, they come when you least expect them. That is, when they can do the most damage.
Our guess is that a crisis will begin before the end of this year. Why? First, because falling oil prices and bond yields signal a slowing economy. A recession is already overdue.
A giant debt depot: Consumers are running into a debt ceiling of their own. They’ve got $14 trillion of household debt. Without real job and income growth, they can only maintain standards of living by borrowing more. But they already owe more than they did on the eve of the 2008 financial crisis; their knees are beginning to buckle.
Used auto prices are falling, putting the whole structure of $1.2 trillion worth of auto debt in danger. Student loans - another $1.2 trillion of debt - are increasingly uncollectable. And states and local governments have $5 trillion worth of unfunded pension liabilities. Corporate debt is at record levels, too, near $8.5 trillion.
In the next crisis, many marginal borrowers will have trouble paying back their loans. Write-offs, defaults and bankruptcies will blow up. And don’t forget that the whole world economy is interconnected. That whiff of smoke you smell could be coming from China. That country has become a giant debt depot. And somewhere, in the corner of some abandoned warehouse, a small pile of debt-soaked rags smolders. When the flames break out sparks will fly across the Pacific in a matter of seconds. Minutes later, the entire world’s finances will be aflame.
Imperial decline: Second, debt levels are higher than ever. There is said to be more than $250 trillion worth of debt worldwide. And running up debt is like stacking blocks of wood. The higher you stack them, the more likely they are to fall over. Ms Yellen says the banks are better regulated and less likely to fail in a crisis. But the latest stress test shows bank vulnerability to credit card debt has actually increased.
Besides, bank debt is only a part of the picture. The US government is bumping up against a debt ceiling, for example. What will happen when the feds run out of money, with the ceiling still in place? Will Congress raise it in an orderly way? Or will it be another circus of tweets and recriminations, like Russiagate or Obamacare, leading investors to quietly take their money off the table and head for the exits?
But the flash point in the coming crisis could also be US asset markets. There, price discovery by honest and diligent investors has given way to price manipulation by conniving Fed (and other central bank) employees. Now, with little connection between price and value, just a little bit of selling is likely to set off a ‘sell cascade’ as these ‘smart systems’ hit automatic stop-loss orders and begin selling trillions’ worth of ETFs, robo-trader pools, algo-driven hedge funds, and quant-managed accounts.
There will be no calm walk to the exits, but a catastrophic surge, with millions of investors crushed on the carpet. What will be the trigger? Again, we don’t know any more than Ms Yellen. But she might want to turn on the TV news. She is likely to be appalled. Every day brings new reasons to head for cover. She might want to look out the window, too. For all we know, it will never, ever rain again. But we keep an umbrella next to the door, just in case.”
"A CNN producer and a top on air talent were both caught on hidden camera admitting the so-called Trump collusion story was a “nothing burger,” “pretty much BS” and was being followed “because of ratings.” Project VERITAS produced the videos that aired just after CNN was forced to retract and take down a false story on a Trump supporter and friend. A $100 million lawsuit was reportedly threatened, and the story was quickly taken down. Apologies were made by CNN after some involved with the story were forced to quit. It appears none of the bosses in charge took any of the blame.
The U.S. dollar continued to sink in value. It was down in value a half percent in a single day on Thursday. Gregory Mannarino of TradersChoice.net says a declining U.S. dollar is desired by the Treasury Department and the Federal Reserve. The idea is to pay back borrowed dollars with devalued currency. Mannarino thinks they will continue to “kill the dollar,” which will cause more inflation for “We the People.”
There are earthquakes happening around the Yellowstone Caldera, and some 800 have recently been detected. This worries scientists because the Caldera has been dormant for hundreds of years. Scientist say if Yellowstone blows, it could kill 90% of the people living within 600 miles. Of course, the mainstream press is so worried about following the false narrative of the Trump/Russia collusion story they fail to report things like Yellowstone and the potential problems."
"Join Greg Hunter as he talks about these stories and more in the Weekly News Wrap-Up."
"Far beyond the local group of galaxies lies NGC 3621, some 22 million light-years away. Found in the multi-headed southern constellation Hydra, the winding spiral arms of this gorgeous island universe are loaded with luminous young star clusters and dark dust lanes. Still, for earthbound astronomers NGC 3621 is not just another pretty face-on spiral galaxy.
Click image for larger size.
Some of its brighter stars have been used as standard candles to establish important estimates of extragalactic distances and the scale of the Universe. This beautiful image of NGC 3621 traces the loose spiral arms far from the galaxy's brighter central regions that span some 100,000 light-years. Spiky foreground stars in our own Milky Way Galaxy and even more distant background galaxies are scattered across the colorful skyscape."
“We plan our lives according to a dream that came to us in our childhood, and we find that life alters our plans. And yet, at the end, from a rare height, we also see that our dream was our fate. It's just that providence had other ideas as to how we would get there. Destiny plans a different route, or turns the dream around, as if it were a riddle, and fulfills the dream in ways we couldn't have expected.”
"Hope is with you when you believe The earth is not a dream but living flesh, That sight, touch, and hearing do not lie, That all things you have ever seen here Are like a garden looked at from a gate.
You cannot enter. But you're sure it's there. Could we but look more clearly and wisely We might discover somewhere in the garden A strange new flower and an unnamed star.
Some people say we should not trust our eyes, That there is nothing, just a seeming, These are the ones who have no hope. They think that the moment we turn away, The world, behind our backs, ceases to exist, As if snatched up by the hands of thieves."