- Doug Casey On The End Of The Nation-State
Authored by Doug Casey via InternationalMan.com,
There have been a fair number of references to the subject of “phyles” in Casey Research publications over the years. This essay will discuss the topic in detail. Especially how phyles are likely to replace the nation-state, one of mankind’s worst inventions.
Now might be a good time to discuss the subject. We’ll have an almost unremitting stream of bad news, on multiple fronts, for years to come. So it might be good to keep a hopeful prospect in mind.
Let’s start by looking at where we’ve been. I trust you’ll excuse my skating over all of human political history in a few paragraphs, but my object is to provide a framework for where we’re going, rather than an anthropological monograph.
Mankind has, so far, gone through three main stages of political organization since Day One, say 200,000 years ago, when anatomically modern men started appearing. We can call them Tribes, Kingdoms, and Nation-States.
Karl Marx had a lot of things wrong, especially his moral philosophy. But one of the acute observations he made was that the means of production are perhaps the most important determinant of how a society is structured. Based on that, so far in history, only two really important things have happened: the Agricultural Revolution and the Industrial Revolution. Everything else is just a footnote.
Let’s see how these things relate.
The Agricultural Revolution and the End of Tribes
In prehistoric times, the largest political/economic group was the tribe. In that man is a social creature, it was natural enough to be loyal to the tribe. It made sense. Almost everyone in the tribe was genetically related, and the group was essential for mutual survival in the wilderness. That made them the totality of people that counted in a person’s life—except for “others” from alien tribes, who were in competition for scarce resources and might want to kill you for good measure.
Tribes tend to be natural meritocracies, with the smartest and the strongest assuming leadership. But they’re also natural democracies, small enough that everyone can have a say on important issues. Tribes are small enough that everybody knows everyone else, and knows what their weak and strong points are. Everyone falls into a niche of marginal advantage, doing what they do best, simply because that’s necessary to survive. Bad actors are ostracized or fail to wake up, in a pool of their own blood, some morning. Tribes are socially constraining but, considering the many faults of human nature, a natural and useful form of organization in a society with primitive technology.
As people built their pool of capital and technology over many generations, however, populations grew. At the end of the last Ice Age, around 12,000 years ago, all over the world, there was a population explosion. People started living in towns and relying on agriculture as opposed to hunting and gathering. Large groups of people living together formed hierarchies, with a king of some description on top of the heap.
Those who adapted to the new agricultural technology and the new political structure accumulated the excess resources necessary for waging extended warfare against tribes still living at a subsistence level. The more evolved societies had the numbers and the weapons to completely triumph over the laggards. If you wanted to stay tribal, you’d better live in the middle of nowhere, someplace devoid of the resources others might want. Otherwise it was a sure thing that a nearby kingdom would enslave you and steal your property.
The Industrial Revolution and the End of Kingdoms
From around 12,000 B.C. to roughly the mid-1600s, the world’s cultures were organized under strong men, ranging from petty lords to kings, pharaohs, or emperors.
It’s odd, to me at least, how much the human animal seems to like the idea of monarchy. It’s mythologized, especially in a medieval context, as a system with noble kings, fair princesses, and brave knights riding out of castles on a hill to right injustices. As my friend Rick Maybury likes to point out, quite accurately, the reality differs quite a bit from the myth. The king is rarely more than a successful thug, a Tony Soprano at best, or perhaps a little Stalin. The princess was an unbathed hag in a chastity belt, the knight a hired killer, and the shining castle on the hill the headquarters of a concentration camp, with plenty of dungeons for the politically incorrect.
With kingdoms, loyalties weren’t so much to the “country”—a nebulous and arbitrary concept—but to the ruler. You were the subject of a king, first and foremost. Your linguistic, ethnic, religious, and other affiliations were secondary. It’s strange how, when people think of the kingdom period of history, they think only in terms of what the ruling classes did and had. Even though, if you were born then, the chances were 98% you’d be a simple peasant who owned nothing, knew nothing beyond what his betters told him, and sent most of his surplus production to his rulers. But, again, the gradual accumulation of capital and knowledge made the next step possible: the Industrial Revolution.
The Industrial Revolution and the End of the Nation-State
As the means of production changed, with the substitution of machines for muscle, the amount of wealth took a huge leap forward. The average man still might not have had much, but the possibility to do something other than beat the earth with a stick for his whole life opened up, largely as a result of the Renaissance.
Then the game changed totally with the American and French Revolutions. People no longer felt they were owned by some ruler; instead they now gave their loyalty to a new institution, the nation-state. Some innate atavism, probably dating back to before humans branched from the chimpanzees about 3 million years ago, seems to dictate the Naked Ape to give his loyalty to something bigger than himself. Which has delivered us to today’s prevailing norm, the nation-state, a group of people who tend to share language, religion, and ethnicity. The idea of the nation-state is especially effective when it’s organized as a “democracy,” where the average person is given the illusion he has some measure of control over where the leviathan is headed.
On the plus side, by the end of the 18th century, the Industrial Revolution had provided the common man with the personal freedom, as well as the capital and technology, to improve things at a rapidly accelerating pace.
What caused the sea change?
I’ll speculate it was largely due to an intellectual factor, the invention of the printing press; and a physical factor, the widespread use of gunpowder. The printing press destroyed the monopoly the elites had on knowledge; the average man could now see that they were no smarter or “better” than he was. If he was going to fight them (conflict is, after all, what politics is all about), it didn’t have to be just because he was told to, but because he was motivated by an idea. And now, with gunpowder, he was on an equal footing with the ruler’s knights and professional soldiers.
Right now I believe we’re at the cusp of another change, at least as important as the ones that took place around 12,000 years ago and several hundred years ago. Even though things are starting to look truly grim for the individual, with collapsing economic structures and increasingly virulent governments, I suspect help is on the way from historical evolution. Just as the agricultural revolution put an end to tribalism and the industrial revolution killed the kingdom, I think we’re heading for another multipronged revolution that’s going to make the nation-state an anachronism. It won’t happen next month, or next year. But I’ll bet the pattern will start becoming clear within the lifetime of many now reading this.
What pattern am I talking about? Once again, a reference to the evil genius Karl Marx, with his concept of the “withering away of the State.” By the end of this century, I suspect the US and most other nation-states will have, for all practical purposes, ceased to exist.
The Problem with the State—And Your Nation-State
Of course, while I suspect that many of you are sympathetic to that sentiment, you also think the concept is too far out, and that I’m guilty of wishful thinking. People believe the state is necessary and—generally—good. They never even question whether the institution is permanent.
My view is that the institution of the state itself is a bad thing. It’s not a question of getting the right people into the government; the institution itself is hopelessly flawed and necessarily corrupts the people that compose it, as well as the people it rules. This statement invariably shocks people, who believe that government is both a necessary and permanent part of the cosmic firmament.
The problem is that government is based on coercion, and it is, at a minimum, suboptimal to base a social structure on institutionalized coercion. Let me urge you to read the Tannehills’ superb The Market for Liberty, which is available for free, download here.
One of the huge changes brought by the printing press and advanced exponentially by the Internet is that people are able to readily pursue different interests and points of view. As a result, they have less and less in common: living within the same political borders is no longer enough to make them countrymen. That’s a big change from pre-agricultural times when members of the same tribe had quite a bit—almost everything—in common. But this has been increasingly diluted in the times of the kingdom and the nation-state. If you’re honest, you may find you have very little in common with most of your countrymen besides superficialities and trivialities.
Ponder that point for a minute. What do you have in common with your fellow countrymen? A mode of living, (perhaps) a common language, possibly some shared experiences and myths, and a common ruler. But very little of any real meaning or importance. To start with, they’re more likely to be an active danger to you than the citizens of a presumed “enemy” country, say, like Iran. If you earn a good living, certainly if you own a business and have assets, your fellow Americans are the ones who actually present the clear and present danger. The average American (about 50% of them now) pays no income tax. Even if he’s not actually a direct or indirect employee of the government, he’s a net recipient of its largesse, which is to say your wealth, through Social Security and other welfare programs.
Over the years, I’ve found I have much more in common with people of my own social or economic station or occupation in France, Argentina, or Hong Kong, than with an American union worker in Detroit or a resident of the LA barrios. I suspect many of you would agree with that observation. What’s actually important in relationships is shared values, principles, interests, and philosophy. Geographical proximity, and a common nationality, is meaningless—no more than an accident of birth. I have much more loyalty to a friend in the Congo—although we’re different colors, have different cultures, different native languages, and different life experiences—than I do to the Americans who live down the highway in the trailer park. I see the world the same way my Congolese friend does; he’s an asset to my life. I’m necessarily at odds with many of “my fellow Americans”; they’re an active and growing liability.
Some might read this and find a disturbing lack of loyalty to the state. It sounds seditious. Professional jingoists like Rush Limbaugh, Sean Hannity, Bill O’Reilly, or almost anyone around the Washington Beltway go white with rage when they hear talk like this. The fact is that loyalty to a state, just because you happen to have been born in its bailiwick, is simply stupid.
As far as I can tell, there are only two federal crimes specified in the US Constitution: counterfeiting and treason. That’s a far cry from today’s world, where almost every real and imagined crime has been federalized, underscoring that the whole document is a meaningless dead letter, little more than a historical artifact. Even so, that also confirms that the Constitution was quite imperfect, even in its original form. Counterfeiting is simple fraud. Why should it be singled out especially as a crime? (Okay, that opens up a whole new can of worms… but not one I’ll go into here.) Treason is usually defined as an attempt to overthrow a government or withdraw loyalty from a sovereign. A rather odd proviso to have when the framers of the Constitution had done just that only a few years before, one would think.
The way I see it, Thomas Paine had it right when he said: “My country is wherever liberty lives.”
But where does liberty live today? Actually, it no longer has a home. It’s become a true refugee since America, which was an excellent idea that grew roots in a country of that name, degenerated into the United States. Which is just another unfortunate nation-state. And it’s on the slippery slope.
- Is U.S. Or China The World's Economic Superpower?
Since the collapse of the Berlin Wall in 1989, the world has had one undisputed economic superpower: the United States.
But while the U.S. has enjoyed its moment in the sun, the balance of power has been slowly shifting towards the inevitable rise of China. It’s been a long time coming, but, as Visual Capitalist's Jeff Desjardins notes, China now has the manpower, influence, and economic might to compete at a similar level – and if you ask people around the world, they’ve certainly taken notice.
Courtesy of: Visual CapitalistECONOMIC SUPERPOWERS
The United States and China combine for 39% of global GDP, 53% of estimated economic growth in the coming years, and 23% of the world’s population.
But which one is perceived as the more dominant economic power?
According to a recent survey by Pew Research Center, the vary wildly depending on the people and country surveyed. However, on an aggregate level that uses the results from the people in 38 countries surveyed, Pew determined that a median of 42% of people list the United States as the world’s leading economic power, while 32% name China as top dog.
While the U.S. maintains a narrow lead in aggregate, things get much more interesting when we look at individual countries.
DIFFERENT PERSPECTIVES
Do America’s closest allies view it as the clear global superpower? What about the countries that neighbor China – surely, they must witness China’s economic might firsthand.
Weirdly, the dominant perspectives in these places are not as obvious as one would think.
More people living in Canada, Australia, and major European countries like France, Germany, Sweden, Spain, and the United Kingdom tend to view China as the global economic superpower.
Meanwhile, the majority of people in South American and African countries see the United States as the world’s major economic power – and people in countries near China (such as South Korea, Japan, Philippines, Indonesia, and Vietnam) all tend to agree with that sentiment as well.
- California Has 11 Counties With More Registered Voters Than Voting-Age Citizens
Authored by Mike Shedlock via MishTalk.com,
The Election Integrity Project California provides a list of 11 California counties that have more registered voters than voting-age citizens.
In addition, Los Angeles County officials informed the project that “the number of registered voters now stands at a number that is a whopping 144% of the total number of resident citizens of voting age.”
The Election Integrity Project California, Inc. has joined Judicial Watch, Inc., a non-partisan organization in Washington, D.C., in sending a National Voter Registration Act (“NVRA”) Section 8 notice of violation letter to California Secretary of State, Alex Padilla.
NVRA Complaint Excerpts
Dear Secretary Padilla:
From public records obtained on the Election Assistance Commission (“EAC”) 2016 Election Administration Voting Survey (“EAVS”), and through verbal accounts from various county agencies, eleven (11) counties in California have more total registered voters than citizen voting age population (CVAP) calculated by the U.S. Census Bureau’s 2011-2015 American Community Survey. This is strong circumstantial evidence that California municipalities are not conducting reasonable voter registration list maintenance as mandated under the NVRA.
This letter serves as statutory notice that Election Integrity Project California, Inc., a registered non-profit corporation in California, and Judicial Watch, Inc., will bring a lawsuit against you and, if appropriate, against the counties named in this letter, if you do not take specific actions to correct these violations of Section 8 within 90 days.
The following information explains how we determined that your state and the counties named are in violation of NVRA Section 8 and the remedial steps that must be taken to comply with the law.
1. Eleven California Counties Have More Total Registered Voters Than Citizen Voting Age Population
Based on our review of 2016 EAC EAVS report, the 2011-2015 U.S. Census Bureau’s American Community Survey, and the most recent California total active and total inactive voter registration records, California is failing to comply with the voter registration list maintenance requirements of Section 8 of the NVRA. For example, a comparison of the 2011-2015 U.S. Census Bureau’s American Community Survey, and the most recent California active and inactive voter registration records shows there were more total registered voters than there were adults over the age of 18 living in each of the following eleven (11) counties: Imperial (102%), Lassen (102%), Los Angeles (112%), Monterey (104%), San Diego (138%), San Francisco (114%), San Mateo (111%), Santa Cruz (109%), Solano (111%), Stanislaus (102%), and Yolo (110%). Our own research shows that the situation in these counties is, if anything, worse than the foregoing data suggest. For example, we contacted Los Angeles County directly this past June. At that time, county officials informed us that the total number of registered voters now stands at a number that is a whopping 144% of the total number of resident citizens of voting age.
2. The NVRA Requires You to Undertake Reasonable Efforts to Maintain Accurate Lists of Eligible Registered Voters
3. Failure to Comply with NVRA Subjects You to Lawsuits and Financial Costs
In passing the NVRA, Congress authorized a private right of action to enforce the provisions of the NVRA, including Section 8. Accordingly, private persons may bring a lawsuit under the NVRA if the violations identified herein are not corrected within 90 days of receipt of this letter.
4. Avoiding Litigation
We hope you will promptly initiate efforts to comply with Section 8 so that no lawsuit will be necessary. We ask you and, to the extent that they wish to respond separately, each county identified in this letter, to please respond to this letter in writing no later than 30 days from today informing us of the compliance steps you are taking. Specifically, we ask you to: (1) conduct or implement a systematic, uniform, nondiscriminatory program to remove from the list of eligible voters the names of persons who have become ineligible to vote by reason of a change in residence; and (2) conduct or implement additional routine measures to remove from the list of eligible voters the names of persons who have become ineligible to vote by reason of death, change in residence, or a disqualifying criminal conviction, and to remove noncitizens who have registered to vote unlawfully.
5. Production of Records
Finally, pursuant to your obligations under the NVRA,15 your office and, to the extent that they keep records separately from your office, each county named in this letter, should make available to us all pertinent records concerning “the implementation of programs and activities conducted for the purpose of ensuring the accuracy and currency” of California’s official eligible voter lists during the past 2 years. Please include these records with your response to this letter.
I hope that the concerns identified in this letter can be resolved amicably. However, if we believe you do not intend to correct the above-identified problems, a federal lawsuit seeking declaratory and injunctive relief against you may be necessary. We look forward to receiving your prompt response.
Sincerely,
JUDICIAL WATCH, INC.
s/ Robert D. Popper
Robert D. Popper
Attorney, Judicial Watch, Inc.Here is the full six-page NVRA Letter to California Secretary of State, Alex Padilla.
Key Questions
- How bad is actual fraud vs. possible fraud?
- How much is purposeful fraud (letting noncitizens) on the voter rolls?
- How often do the dead and nonresidents vote?
- "How Do We Get To The Next Crisis": An Interview With Raoul Pal And Julian Brigden
With the dollar index now 10 points below its recent cycle highs from early January, nervous dollar bulls are starting to reevaluate their initial assumption that this would be a short-term pullback, and many are worried that this could be the start of a new secular bear market. In this week’s MacroVoices podcast, host Erik Townsend invited two of the show’s most popular guests, Raoul Pal and Julian Brigden, two well-respected analysts whose research commands high fees from institutional investors, to discuss complacent equity markets, the timing of the next correction and whether US interest rates will “back up” another 50 basis points.
Townsend started by asking his guests to emphasize areas where they disagree to try and help listeners develop a better understanding of how the two analysts formulate their ideas about markets. But their discussion soon turned to the US dollar, which has been exasperating for the three longtime dollar bulls.
Pal admitted that the dollar’s persistent weakness was beginning to make him nervous as he's been losing money on his dollar trades for a dangerous stretch. However, he believes the “underlying basis for why the dollar bull market should still be in play” is still there.
“Raoul: My view, like yours, is bullish dollars. Now, the problem is we’ve only had two dollar bull markets in history, one in the early 80s and one in the late 90s. So we have a very small data sample to look at the behavior of dollar bull markets. But what I did notice is no dollar bull market has had a weekly close down more than 10%. Once it goes more than 10% it’s generally a reversal. So that’s a kind of—not so much a line in the sand but a guideline for me.
Now, we’re very much there now. We’re at 9.5% negative on a weekly basis. So it’s starting to make me concerned. There’s plenty of support levels around here as well. I use DeMark Indicators and they are counting towards a reversal. We know that the market positioning is very high. So for me it’s really crucial that the dollar does hold.
I think the underlying case for why the dollar bull market should still be in play is still there. But what we need is some sort of change of sentiment within the market, whether it’s either a renewed belief in much faster rate rises in the US or it’s weaker economic growth. The dollar has a kind of smile where it rallies in either/or but falls when we’re in the Goldilocks phase, which we’ve been having recently. So I’m looking at that.
I’m obviously nervous on my view because it has been going against me. And I’ve been in the trade for a long, long time now so, in Euro terms it’s about 148 and a half. So I’m now really finessing the idea does it move further than here?
If we look at the previous dollar bull markets they tend to go much further, so it would tend to suggest there’s maybe another 15 or 20% upside in the dollar over time. I also look at—and something we’ll probably talk about later—the comparison between this dollar bull market and the dollar bull market leading into the 90s is remarkably similar. The pattern almost fits exactly. And that was the period going into 1999 where we had a correction in the dollar. At that time it went about 8.5% and then it turned around and started rallying as economic growth started falling and rates started easing off a bit. The Europeans at the time were raising rates still. And that whole scenario, we saw actually the dollar go much, much higher. And so that’s what I’m looking for. If I’m wrong, the world’s a different place, and there’s a number of trade opportunities from that. But I still remain a dollar bull but a nervous one.”
Brigden says he remains a committed dollar bull, and sees the greenback rising in either one of two scenarios: the greenback will climb as equities and bond price fall in a "risk off rally" where the dollar becomes the haven asset. His other "risk on" case involves the dollar and stocks climbing alongside yieds. Hoping to avoid confusion with his fund's long-Europe trades, Brigden also said it's important to specify what exactly one means when they're talking about going long, or shorting the dollar.
“Julian: So I think one of the things—and I would concur pretty much with everything that Raoul said—I think one of the observations that I would make is that we’ve got to be a little bit careful of what we call a dollar. Because I think there’s a great temptation to look at some of the dollar indexes, in particular the Euro, and say, well, that’s indicative of what the dollar is doing. And I don’t really believe that is the case.
I think we have been as a shop very bullish, and I think it was on your show, Erik, talking about how we saw the growth pickup coming in Europe. We were singularly bullish, the dollar backing end of April beginning of May, for our clients—sorry, singularly bullish, Euro end of April beginning of May, for our clients. And that was on the break of—we started to see break above 108 in the Euro. In actual fact, we just advocated 24 hours ago to start taking profits in those long Euro positions.
But the point is that things like the DXY are essentially Euros. I mean, they’ve got some Swiss Francs in there, some Swedish Krona, and those are both pegged effectively to the Euro. So you really, I think you have to be a bit careful.
I think what we’ve seen a lot this year is a repricing of the growth-inflation story in Europe. And I think that’s one of the reasons why the dollar has been underperforming. So I’m not quite as concerned about this 10% line in the sand. I think Raoul makes some good observations on that, but I would say that I think to get the next kicker we need to see some developments in story here in the US.
We’re either going to have to see a—and this is my fear—we’re going to see a risk-off dollar rally. So you could have a situation where you can get a correction in bond markets and a correction in equities, and you can actually get the dollar rising because it’s a safe haven vehicle. Or we move into the latter half of the year, we get the Fed to start to shrink the balance sheet—I talked to your listeners about this before—I think that’s potentially a very bullish event. And particularly as well in early 2018 if we get the Trump tax cut.
And my sources in D.C. tell me that still the odds—even though Trump doesn’t seem to be able to put his trousers on straight any day of the week—that the odds are somewhere around 65-70% that we get a tax deal. And it will definitively include repatriation. So I think, to me, I’m still in that structural bull environment for the dollar. But it—we may have quite a few months to wait still. And in that interim, I think what we’re doing is just repricing the Euro.”
Turning the conversation to equities, Brigden said the US market is showing signs of a "classic bubble," meanwhile, rising interest rates and a hoped-for reversal in the dollar would remove two of the fundamental cases for being long equities.
“Just because we’d had this incredibly good run, we think that a lot of the outperformance of the European stock market had been predicated on Euro weakness and also low bond yields. And both of those we think are in the process of changing. So we scaled back our belief in this European outperformance trade at this stage.
I think the US equity market, we seem to be going through this game of rotation. And once again, to differentiate between markets, you know, in the same way that you can’t look at the dollar as just a single thing. What we’ve got is we’ve had up until the last week or so really very aggressive outperformance by a relatively narrow group of stocks. And those stocks—and you know we’ve talked about it in a number of publications—are increasingly looking like what I would call a classic bubble, and I think I’ve talked on your show about a classic bubble. It’s just chart pattern we look for, Erik.”
Meanwhile, Pal said “there are opportunities” in equities among the ongoing changes in underlying market conditions:
“Raoul: Well, for me, I would like go back to the business cycle. You know, we looked at it last year and the business cycle weakened significantly, gained traction again, and bounced again. I mean, it’s done this a couple of times now. It’s tiresome, but it is what it is. Because I much prefer it when we get to the bottom of a cycle—we know when to invest etc. But waiting for this is slightly painful.
But until economic growth weakens in any meaningful way, the equity market will continue to grind higher, volatility will remain low, until something changes. Now there is—and that’s structural volatility. There are opportunities—and I think Julien will talk a bit about this—for spikey volatility where there is an opportunity for a risk-off, which may not be pervasive and may not last very long. We won’t get anything that lasts long and we won’t get a structural shift in volatility until the business cycle weakens.”
Pal also believes that interest rates could head back toward 3% in the medium term if President Donald Trump manages to pass tax reform.
“Raoul: Yeah, again, we need to talk about path and we need to talk about time horizons. So, for me, the path is—I’m less interested in—I think it’s a pretty benign environment for US rates. Yes, if Trump does manage to pass something in terms of economic stimulus in terms of some sort of fiscal policy or taxation, whatever it may be, then can rates back up a bit? Yeah.
But, for me, I’m indifferent from a backup in rates from, you know, 225 where they are today at ten years, to, 275. Fifty basis points I don’t really care, because I think the risk reward is that, at the bottom of the business cycle—which we’ve identified has to come and will come within the next call it 18 months—the bottom of the business cycle should see bond yields at 50 basis points or even less. So that makes, even with a backup in yields to let’s say 275, it still makes it kind of a five for one risk reward.
So, for me, I look through the speed bumps and look at the horizon. The horizon for me is 50 basis points at the bottom of the next business cycle, which has to come. Well, it doesn’t have to come, but the probability is extremely high that it comes in the next 18 months or two years.”
Brigden said that while Pal may be correct, he wasn't comfortable with the time frame, saying it could take longer for bond yields to start moving higher again. But the more important question is when will we see the next market crisis commence, and how will we get there. That's the key topic of discussion in the next section:
“Julian: Yeah, it is Erik. I mean, it’s certainly in the next, shall we say, six months. And I think it’s—Raoul and I talk about this a lot and it’s one of the things that I think we believe is one of the strengths of the product: we tend to sort of chew through our stories. And our views are structurally very, very similar, but often our timelines are slightly different in how we get there.
And my concern is I can ultimately see Raoul’s right, I mean, I think we could get another very nasty downturn. I think we could get a—you know, it’s hard to argue against the sort of structural deflationary trends or disinflationary trends that you see globally. The question is how do you get to that next crisis? Do you sort of go quietly into the night, and we walk in one day and ISM stands at 45, and everybody says, wow, QE doesn’t work. Or do you get there a different way?
And my inclination is I believe we’ll actually get there a slightly different way. And at the moment the biggest risk that I see in markets is this chasm between, as I said, equity market pricing and bond pricing. And with that you can throw in Vol. And my biggest fear is that we’re going to get to the next crisis, not via immediate economic weakness, but actually via strength.
And it isn’t so much in the US. As I said, I think there’s a chance that we get a burst of very aggressive activity. That’s sometime in 2018 if we get this Trump stimulus through.
But when I look at the world, actually, my biggest fear—and I think this is interesting for US listeners of yours, because generally Americans don’t look too broadly at the rest of the world, they tend to be very focused certainly in financial networks, they tend to be very focused on what’s going on in the US—I actually think the biggest risk is Europe. I look at European growth models—and we’ve talked about this—but these things continue to strengthen. And the inflation picture, actually, I think is just really going to rip.
And I was reading today how one of my peers was talking about how, for the fourth time, ECB’s going to have to upgrade their growth forecasts. Well, I just think they’re going to have to keep upgrading and upgrading their growth forecasts. And what I fear is that we’re on the cusp of a repeat of events that we saw in the spring of 2015. So, if you remember, at that point ECB had launched QE in the end of 2014, the DAX had ripped higher, and bund yields were locked at zero. And then, one day we walked in and the bund market finally said, screw this, I am repricing because what’s the point of holding bunds at zero, if the DAX is going through the stratosphere.”
Both men are also worried about how shifting demographics, notably how the aging baby boomer generation will impact markets. With the largest-ever wave of retirees set to leave the workforce in the next few years, equity markets are facing a terrifying transition: When millions of buyers are, for the first time, forced to sell.
You can listen to the podcast in full below:
- 1400-Quake Swarm Prompts Question "If Yellowstone Erupted, What Would Be Left?"
Yellowstone volcano has been struck by 1,400 earthquakes in recent weeks, leading to fears that the supervolcano is ready to blow and wipe out life on Earth.
Seismic activity around the Yellowstone National Park in Wyoming, US, is not uncommon, but the heaviest swarm in half a decade has people very concerned.
Since June 12, The Express reports there has been over 1,400 tremors in the region, and experts state that the swarm could go on for another month.
However, seismologists state that there is nothing to be concerned about yet. Jamie Farrell at the University of Utah in Salt Lake City told New Scientist:
“This is a large swarm but it is not the largest swarm we’ve recorded in Yellowstone.
“Earthquake swarms are fairly common in Yellowstone.
“There is no indication that this swarm is related to magma moving through the shallow crust.”
Neverthelesss, following Montana’s biggest earthquake in 34 years, a 5.4 tremor in early June, which is on the same fault line as Yellowstone, and coupled with the swarm of quakes in the National Park, many are convinced that the supervolcano is now ready to blow.
One local wrote on Twitter: “Earthquake in Bozeman = truly terrified Yellowstone volcano gonna go off.”
So what would happen?
- Is There A Relationship Between Coffee Shops And High Rent?
Submitted by Priceonomics
The American city runs on coffee. It’s served nearly everywhere, in cafes, restaurants, and corner stores, and it’s an ingrained part of most people’s morning routines. From the distinct taste, to the plethora of ways it can be prepared, to the benefits of caffeine, most people can find an aspect of the drink that they love.
Though while it is common, getting coffee from a coffee shop rather than making it at home can be expensive. It is somewhat of a luxury item, especially if you consider the cost of fancy cafes serving espresso and pour over drinks (generally referred to as third wave coffee). For this reason, some measure of coffee shops could be useful as a barometer of city and neighborhood cost. Our hypothesis is that an area with a greater number of coffee shops would have a population with a larger disposable income, who can also afford more expensive housing.
So, in US cities, are the number of coffee shops and rent prices connected in any way?
We analyzed data from Priceonomics customer RentHop, an apartment listing site, to explore that question. We have thousands of recent rental listings, which we used to find median rental prices. Then, by connecting that with business data from Datafiniti (also a Priceonomics customer) detailing coffee shops in each city, we were able to highlight the relationship between the two factors. We conducted analysis at the city level, but also completed a deep dive into neighborhoods in Manhattan, NYC.
At the Manhattan neighborhood level, high rent is positively correlated with coffee shops, but the results nuanced. Generally neighborhoods that were more expensive had a greater number of coffee shops per capita, especially around Midtown. Areas with large concentrations of office buildings have large numbers of coffee shops to cater to office workers (e.g. Midtown Manhattan, Financial District). Other neighborhoods are appealing specifically because they are more residential (and have fewer businesses) and can command higher rents (e.g. Stuyvesant Town-Cooper Village).
We also examined the number of coffee shops per capita in various cities across America. We found that generally, the number of coffee shops in a city did not correlate strongly with the median rental price, though there were some standout cities like San Francisco with a lot of coffee shops and high rent.
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For our first look at the data, we want to determine median rental prices for our cities of interest. In our analysis, we will examine cities where there is sufficient data about both rentals and businesses.
Data source: RentHop
New York City has the highest median rent while Atlanta has the lowest. This follows what we would expect, with coastal cities with higher population densities being the most expensive.
Within these cities, we also need to count the number of coffee shops and cafes. Restaurants or corner stores that also serve coffee were not included.
Data source: RentHop
Already we can see that our rankings are very similar to what we had for median rent. New York City is first with over 1,600 coffee shops. The next in our list is San Francisco with 650.
Cities that are larger in general will tend to have more of any kind of business. By adjusting for population, calculating number of coffee shops per 100K residents, we can control for this fact.
Data source: RentHop
Washington D.C. and San Francisco have the greatest number of coffee shops per capita. Los Angeles has the fewest. New York, which had the greatest absolute number of coffee shops, now sits at the middle of the pack.
Now we will take the two measures, coffee shops per capita and median rent, and plot them together to visualize the relationship.
Data source: RentHop
Overall, we do not see a clear trend supporting the relationship between coffee shops and rent. We are only looking at seven rental markets so additional research would be necessary to definitely prove the relationship between coffee and rent.
We do, however, have a rich set of data specifically for Manhattan in New York City. Manhattan is divided into 28 Neighborhood Tabulation Areas (NTAs) by the city government. We will group the business and rental data into these geographic areas and complete a similar analysis.
Now at a more granular level, will we see a clearer correlation between coffee shops and rent prices? Again, our first step is to list median rental prices.
Data source: RentHop
The area of SoHo–TriBeCa–Civic Center–Little Italy has the most expensive median rent. This area is one of the trendiest, with many expensive bars, restaurants, galleries, and boutique stores. Additionally due to history of development in Manhattan, the residential buildings are much smaller, increasing the pressure on price. Marble Hill–Inwood, at the very northern tip of Manhattan and across from the Bronx, is the least expensive. Inwood once had the highest crime rate in Manhattan, but recently has seen a large decrease in crime consistent with New York City overall. It also has a lower median income than most neighborhoods in
We have a map to help visualize the differences in rent. Neighborhoods were split into rent quintiles (five equal sized groups) based on prices.
Data source: RentHop. Grey areas do not have sufficient data for analysis
We can see that the areas of high rent are concentrated around the middle of the island especially near Central Park as well as the West Village area.
Next we will look at coffee shops in each NTA. How many coffee spots does each neighborhood have:
Data source: RentHop
Midtown-Midtown South has the greatest number of coffee shops. It has close to double the number of shops as SoHo-TriBeCa-Civic Center-Little Italy and Hudson Yards–Chelsea–Flatiron–Union Square. These areas with many coffee shops either the primary centers of business in the city or areas with lots of shopping and dining (for tourists). Several neighborhoods have 10 or fewer shops. There are a few possible reasons for their low ranking including being a smaller size or having a lower proportion of business in the area. Additionally many of these are neighborhoods with lower incomes generally, which seems like a plausible explanation but cannot be proven from this analysis.
Again we will map this data to help visualize the differences. Similar to the last map, neighborhoods have been placed into quintiles based on the number of coffee shops.
Data source: RentHop. Grey areas do not have sufficient data for analysis
Again we see similar concentrations of the neighborhood groups. More coffee shops tend to be around Midtown and the lower-west end Manhattan.
It is clear from the maps of Manhattan though that each neighborhood is a different size. We can also confirm that they have different sized populations. To accurately compare each, we must account for the population in our calculation. We will do this by finding coffee shops per 100K residents, just as we did earlier.
Data source: RentHop
Several of the same neighborhoods are at the top and bottom of our list. The top neighborhood again is Midtown-Midtown South. It has so many more coffee shops per capita than any other neighborhood due to it’s large commuter population and tourist population. Two of the other top four neighborhoods, Battery Park City-Lower Manhattan and Turtle Bay-East Midtown, are similar in nature and comprise areas around Grand Central Terminal and the Financial District.
With our map of Manhattan, we can see if a similar pattern appears in our neighborhood locations
Data source: RentHop. Grey areas do not have sufficient data for analysis
In this map, there is more of a clear gradient from the northern tip of Manhattan (neighborhoods with the fewest coffee shops per capita) towards the bottom (neighborhoods with the most coffee shops per capita). This makes sense as we have explained earlier many of the neighborhoods below central park are full of offices and destinations for tourists. The other neighborhoods are more residential in nature, with relatively fewer businesses.
Finally, we will plot the relationship between coffee shops per capita and median rent to understand the relationship. We’ve labeled several neighborhoods to illustrate how different areas of Manhattan fall on the spectrum of coffee vs. rent.
Data source: RentHop
This time the relationship, while still not linear, has a generally positive direction. A few notable outliers include Midtown-Midtown South and Stuyvesant Town-Cooper Village.
Midtown-Midtown South has more coffee shops per capita than any other neighborhood. As stated earlier, it is largely made up of office towers and tourist destinations. Most of the daytime population is made of up commuters coming into the city from outlying areas (especially NY state, NJ, and CT). This is also where Times Square and other areas where visitors to the city flock. It is most likely that these coffee shops are catering toward these crowds in addition to regular residents and therefore need more locations to keep up with demand.
A neighborhood with very few neighborhoods despite being one of the most expensive is Stuyvesant Town-Cooper Village, a private housing development built after World War II originally for veterans and their families. The area is almost entirely residential, featuring 110 buildings surrounded by public parks. It has become a very desirable neighborhood due to the amenities and location, therefore quite expensive. As it was planned to be entirely residential, the neighborhood does not have the same mix of commercial and residential space as the rest of NYC. This artificially creates a shortage of coffee shops that we do not account for in our hypothesis.
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It appears that the relationship is somewhat clearer for neighborhoods than cities overall. At the neighborhood level in Manhattan, there is a positive correlation between coffee shops and rental prices.
- Dead.Market.Walking
While all eyes have been focused on the incessant rise in the price-weighted farce known as The Dow Jones Industrial Average, a funny thing happened in the 'real' market…
The S&P 500 went nowhere… 2474, 2473, 2473, 2470, 2477, 2478, 2475, 2472, 2470, 2476, 2478, 2472, 2477…
How unusual is this? Simple – it's never, ever (in 90 years of S&P history) happened before…
Since The Fed (et al.) began tinkering (red shaded box), markets have slowly (and now quickly) died.
Perhaps even more worrisome, Investors are positioning for more of the same…
There has never been a bigger speculative position tilted towards still-lower volatility…ever!
- Only Ten Years After The Last Financial Crisis the Banks Are At It Again
Via Jesse's Cafe Americain blog,
Apparently the Banks have been lobbying heavily, and expending significant amounts of money again, leaning on their Congressmen and pressuring regulators, saying that their capital standards need to be relaxed so that they can make more loans to stimulate economic growth.
But that, according to the FDIC Vice-Chairman, is utter nonsense.
Hoenig, who was a high-ranking Federal Reserve official during the crisis, cautioned Senate Banking Committee Chairman Mike Crapo and the committee's senior Democrat, Sherrod Brown, "against relaxing current capital requirements and allowing the largest banks to increase their already highly leveraged positions."
Using public data to analyze the 10 largest bank holding companies, Hoenig found they will distribute more than 100 percent of the current year's earnings to investors, which could have supported to $537 billion in new loans.
On an annualized basis they will distribute 99 percent of net income, he added.
He added that if banks kept their share buybacks, totaling $83 billion, then under current capital rules they could boost commercial and consumer loans by $741.5 billion.
'While distributing all of today’s income to shareholders may be received well in the short run, it can undermine their future returns and weaken the growth outlook for the larger economy,' he wrote."
– Reuters, Payouts, not capital requirements, to blame for fewer bank loans: FDIC vice chairman
The Banks are spending a substantial amount of their current income on dividends to shareholders and large stock buyback programs designed to increase their share prices.
The chart above shows in the first column the almost shocking Payout Ratios being maintained by some of the Banks.
In the second column there is an estimate of how many more loans the Banks could have made at current capital requirements if they had not spent their cash buying back their own shares.
Since Bank managers are personally heavily rewarded on the share price of the Banks through bonuses and share options, the cause of this is clear.
There has been insufficient reform in the Banks. Lending and basic banking would better function like a utility, with much more efficient and effective levels of risk management.
Basic banking including loans and deposits ought not to be an adjunct or cover for the kinds of speculation and gambling with other people's money that led to the last financial crisis that brought the global economy to its knees.
This problem was addressed by Glass-Steagall and functioned very well, keeping the banking system essentially sound for almost seventy years, until it was repealed under the Clinton Administration in conjunction with a Congress all too willing to sacrifice the interests of their voters to Big Money.
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"If at times his [Andrew Jackson's] passionate devotion to this cause of the average citizen lent an amazing zeal to his thoughts, to his speech and to his actions, the people loved him for it the more. They realized the intensity of the attacks made by his enemies, by those who, thrust from power and position, pursued him with relentless hatred. The beneficiaries of the abuses to which he put an end pursued him with all the violence that political passions can generate. But the people of his day were not deceived. They loved him for the enemies he had made.
Backed not only by his party but by thousands who had belonged to other parties or belonged to no party at all, Andrew Jackson was compelled to fight every inch of the way for the ideals and the policies of the Democratic Republic which was his ideal.
An overwhelming proportion of the material power of the Nation was arrayed against him. The great media for the dissemination of information and the molding of public opinion fought him. Haughty and sterile intellectualism opposed him. Musty reaction disapproved him. Hollow and outworn traditionalism shook a trembling finger at him. It seemed sometimes that all were against him—all but the people of the United States.
Because history so often repeats itself, let me analyze further. Andrew Jackson stands out in the century and a half of our independent history not merely because he was two-fisted, not merely because he fought for the people's rights, but because, through his career, he did as much as any man in our history to increase, on the part of the voters, knowledge of public problems and an interest in their solution. Following the fundamentals of Jefferson, he adhered to the broad philosophy that decisions made by the average of the voters would be more greatly enduring for, and helpful to, the Nation than decisions made by small segments of the electorate representing small or special classes endowed with great advantages of social or economic power.
He, like Jefferson, faced with the grave difficulty of disseminating facts to the electorate, to the voters as a whole, was compelled to combat epithets, generalities, misrepresentation and the suppression of facts by the process of asking his supporters, and indeed all citizens, to constitute themselves informal committees for the purpose of obtaining the facts and of spreading them abroad among their friends, their associates and their fellow workers."
Franklin D. Roosevelt, Jackson Day Dinner Address, Washington, D.C.
January 8, 1936As an aside, I find it telling that the current crop of Democratic Party plutocrats want nothing to do with the policies of Jackson or Roosevelt.
I think the reasons are obvious. I would like to think that they are merely mistaken. But it is clear that they are serving the masters that they love the most. As for the Republicans, they have long ago betrayed their roots and become the servants of Big Business, and seem to be beyond all hope of reform.
- The Real Dumb Money: Retail Investors Have Outperformed Hedge Funds By 300%
There seems to be an inverse relationship between an investor’s purported level of sophistication and their returns in recent years. At least, that’s what one might assume when comparing the historical aggregate return of US households with that of the hedge funds community.
Using data from the Federal Reserve, Gaurav Chakravorty and Amit Sinha explained in a column for MarketWatch how since 2003, the average American household has earned a greater return on investment than the average hedge fund. What accounts for this achievement gap? The two authors explain that households typically don’t invest their wealth like “day traders” or “return chasers.”
They operate more like “skilled portfolio managers” who “appear to be rational actors.” In other words, they rarely adjust their portfolios.
Households also outperformed hedge funds while taking on a similar level of risk.
“We estimate that since 2003, the average household has earned more than 4.5% a year from their investments. While 4.5% annual return may sound low at first glance, especially given that the S&P 500 SPX, +0.19% returned about 9.5% over the same period, U.S. households achieved these returns by taking half the risk of S&P 500.
Furthermore, these returns exceed the returns from a diversified hedge fund index, which earned just 1.6% a year.”
The outperformance in household returns is due, in part, to their savings rate, which allows to build on their investments, and higher rates of diversification.
“Households continued to steadily add to their savings over the study period, and their investments were evenly spread across many different assets — such as stocks, bonds, real estate and pensions — as opposed to being concentrated in a single asset, such as real estate.”
While real-estate has historically comprised nearly a third of household wealth, that dynamic has changed since the beginning of the bull market in 2009. Since the crisis, stock-market gains have been primarily responsible for repairing household balance sheets, instead of real estate.
“Real estate hasn’t driven the repairing of household balance sheets. In the run-up to the 2008 financial crisis, real estate was one of the largest contributors to household wealth and represented about 32% of total wealth. After the financial crisis, real estate has been hovering close to the lowest historical levels at around 24% of total assets.”
While this might sound surprising to some, the reason is because stricter lending standards adopted since the crisis have made it more difficult for people to become homeowners. Meanwhile, an increasing number of homes are being purchased by foreigners, or by real-estate partnerships.
“Initially, this may appear surprising, given the run-up in real-estate prices in most parts of the country. However, a further analysis shows most households haven’t participated in the latest boom. Bank lending standards are stricter than before, with over 60% of new mortgages going to borrowers with excellent credit scores, as compared with only 25% before the 2008 financial crisis. In addition, an increasing portion of homes are being purchased by foreign buyers and real estate partnerships.
When we combine these factors with one of the strongest bull markets since 2009, it’s why the stock market has become a bigger driver of household wealth creation than real estate.”
Going forward, mom and pop investors should be careful about managing their risk exposure, as a growing share of their wealth is being bound up with equity prices. At 35% of total assets, household allocation to stocks are near historic highs. Before the dot-com bubble, stocks represented less than 30% of total assets, but peaked at 38% during the height of the dot-com bubble.
One reason for this is the change in how we save for retirement, with 401(k)s and private plans taking the place of defined-benefit contribution programs.
“…household wealth is exposed to stock markets through pensions and entitlements, as 401(k)s, IRAs, and other defined-contribution retirement programs tend to have equity allocations. A household may even be indirectly exposed to the stock market in defined-benefit pension plans tied to final salaries, as the provider of pensions (the employer) might be invested in stocks.”
Many households are also falling far short of the savings rates needed to fund their retirement. The Center for American Progress estimates that almost 70% of near-retirement households are at risk of not having enough money saved for retirement. Unfortunately for those somewhat further away from retirement, being saddled with $1.4 trillion in aggregate student debt isn’t a great start, especially when one factors in stagnant wage growth and rising rents.
Maybe it's time the 2 and 20 "smart money" crowd gave mom and pop some AUM to manage: that way the former can finally "outperform" a benchmark, while the latter could actually have money for retirement.
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