- How Do People Destroy Their Capital?
I have written previously about the interest rate, which is falling under the planning of the Federal Reserve. The flip side of falling interest rates is the rising price of bonds. Bonds are in an endless, ferocious bull market. Why do I call it ferocious? Perhaps voracious is a better word, as it is gobbling up capital like the Cookie Monster jamming tollhouses into his maw. There are several mechanisms by which this occurs, let’s look at one here.
Artificially low interest makes it necessary to seek other ways to make money. Deprived of a decent yield, people are encouraged (pushed, really) to go speculating. And so the juice in bonds spills over into other markets. When rates fall, people find other assets more attractive. As they adjust their portfolios and go questing for yield, they buy equities and real estate.
Dirt cheap credit is also the fuel for rising asset prices. People can use leverage to buy assets, and further enhance their gains.
And it’s wonderful fun. A bull market, especially one that is believed to be infinite—if not Fed-guaranteed—seemingly provides free money. All you have to do is buy something, wait, and sell it. You can get your capital back plus something extra.
Many people spend most of this extra. This is their gain, their income. Their brokers, advisers, and other professionals also make their income off of it.
However, there’s a contradiction. Common sense tells us that it should be impossible to consume without first producing something. How can this be possible? How can an entire sector of economy get away with it?
It can’t. There is no Santa Claus. Something else is happening, something insidious.
The falling-rate-driven bull market is a process of conversion of someone’s wealth into your income.
Let’s look at how this works. Suppose Jennifer buys a condominium for a million bucks. If she pays cash, this is a large chunk of her life savings or inheritance. If she borrows to buy it, then she’s disbursing someone else’s savings. That saver has no idea what is being done with his savings. He probably thinks it’s safe in
the bank.Jen forks over this cash to the seller, David. Dave recovers his original cost to buy the asset, say six hundred grand. The rest, say four hundred, is profit. He goes out and uses much of the profit to buy a Ferrari, drink a 1983 Bordeaux, and dine on beluga caviar. Dave is driving, drinking, and eating Jen’s life savings.
What was Jennifer thinking? Why did she place so much of her wealth into his hands of David, who will only consume a large part of it?
Simple. Jen sees the bull market, and expects it to continue. She is hoping that after a while, she will sell at a profit. That is, she relies on the next guy to come along and give over an even larger chunk of wealth to her, so she can consume it. Maybe Ferraris aren’t her thing, but she fancies a cruise around the world, a diamond necklace, and she will enjoy some caviar too.
Charles Ponzi is now infamous for having promoted a scheme, where people who buy in later are enabling the earlier participants to cash out with profits. Such schemes can’t go on forever, because they are cannibalizing the participants. They do not generate real profits by increasing production. There are mere transfers, converting the wealth of some into the income of others.
Ponzi had nothing on the Fed, with its endless bond bull market, speculation, and capital destruction. Don’t blame Jennifer or David. Blame the Fed and its perverse game.
Gold is an international issue from China to Switzerland to India. It’s also a national issue in the US, as it is part of the Republican primary debate. And it is an issue in Arizona, soon to become (we hope!) the third state to pass a gold legal tender law. Please come to the Monetary Innovation Conference in Phoenix on Tuesday. Keith will discuss his ideas about falling interest rates and how it’s hurting everyone from savers to retirees. Entrepreneurs will discuss the problems they’re solving using gold. Please click here to register
- The Problem With Education Today, by JS Kim
The institutional academic system is broken. We need less systemic, traditional education that only provides knowledge of low utility and more alternative education that provides the right high-utility knowledge to thrive during today’s global currency wars. We will be introducing the SmartKnowledgeU SmartWealth Academy before the end of this year as an alternate and competitive education choice to not only all college and university business and all graduate MBA programs, but also as an alternate choice to typical and expensive professional continuing education programs such as Certified Financial Planner and Chartered Financial Analyst programs, all of which we believe have very low utility in contributing to sound financial plans to cope with the ongoing Central Banking currency wars.
What is the SmartWealth Academy? The SmartWealth Academy is an online academy that I designed to make much of the current traditional business curricula taught in brick and mortar classrooms today entirely irrelevant. Education is one of the most important determinants of financial success in life. Yet, even though I attended an Ivy League university in America and earned two Masters degrees, an MBA and a Master in Public Policy, were I 18-years-old again and just entering college, I would quite happily choose to forego both my Ivy League university education and any knowledge I gained during the course of my two Master degrees. Why? Today, academia has devolved into much more of a business and a social conditioning lab experiment than an education lab that produces educated young men and women. I designed the SmartWealth Academy to return education back to a purpose that is has not served in over a century– preparing boys and girls, young men and young women, and adult men and adult women with all the requisite knowledge necessary to understand, cope with, and prosper from the extreme socioeconomic paradigm shifts we are experiencing today, a mission that traditional academia miserably fails to accomplish. Today, my understanding of financial markets is so superior to my level of understanding at the time I earned my MBA, that I now realize that no traditional schooling at all would have left me in a far better position to understand how global financial markets truly operated and how to truly preserve and build wealth during the course of my lifetime. Instead, I had to waste several years of my life just deprogramming myself from the ridiculous garbage I learned in my MBA program and to rid myself of the inflexible mindset that my professors had programmed into me before I could even truly start to learn the truths I am aware of today.
The dirty secret of the business academic world is that all the economic theory, marketing theory, accounting theory and statistical models they teach us in brick and mortar classrooms have very low utility in contributing to financial success later in life, though it certainly helps to provide for the multi-million dollar salaries of top University Presidents today. For example, the median earnings of alumni from my alma mater, the University of Pennsylvania, was reported at $78,000 a year in 2015. Comparatively speaking, University of Pennsylvania President Amy Gutmann raked in in over $2.8 million in salary in 2014, or about 36 times the median earning of a Penn graduate. This, despite, the fact that nearly all university business programs don’t reveal any relevant knowledge about the inner workings and mechanisms of asset prices in capital markets today, but instead still feed students that pay up to $100,000 a year for MBA degrees, outdated curricula and theory that no longer apply to a world that has radically changed due to technological developments such as dark pools and HFT algorithms that provide bankers with excessive competitive advantages not only over their clients, but also with advantages to conceal bankers’ theft from their clients. I have always conceded that degrees offering specialized knowledge in medicine, architecture, engineering, etc. are still valuable, but as far as traditional business degrees are concerned, I find little value in these bloviated, low-utility degrees.
In fact, more than five years ago, I wrote a 3-part series titled “The Astounding Failure of the US Educational System” and followed that series up with a 2011 article titled, “Everything I Learned About Succeeding in Business, I Learned Outside of the University Education System.”
Reactions of disdain from many business school professors regarding these series of articles only reinforced my belief that most professors working within the confines of traditional brick and mortar classroom business curricula were inflexible, set in their ways, and shut off to the possibility that they contributed very little to their students’ understanding of how today’s opaque financial markets truly operate.
I had concluded, after graduating from a top 15 MBA program in the US and a top 5 university, that the theory and case studies I learned in business school simply were not applicable to real world situations. Learning about the concepts of dark pools, high frequency trading algorithms, fractional reserve banking, the differences between sound money and unsound money, Central Bankers’ managed perceptions of asset price behavior, cognitive dissonance, and social conditioning, all topics that were self-taught outside the brick and mortar classrooms of business school, were integral in my ability to eventually free myself from the deceitful web of compliance and ignorance in which my traditional education had successfully entangled me. Albert Einstein once stated, “The value of an education … is not the learning of many facts, but the training of the mind to think something that cannot be learned from textbooks.” (Source: Frank, Phillip. Einstein, His Life and Times. Boston: De Capo Press, 2002.) Unfortunately, all traditional universities have devolved into the learning of facts, and often, the teaching of facts that are not even facts. For example, even though I attended so-called top-tier universities, I later discovered that 95% of the “facts” I learned about the monetary system and about the gold standard in school was completely wrong. So not only were the “facts” I learned of zero utility, but they actually were harmful to my understanding of how finance and capital markets actually operate, because they were wrong.
A journalism professor at the University of Texas at Austin, Dr. Mercedes Lynn de Uriarte, taught me one of my most valuable lessons in life at a young age. In my elective graduate-level journalism class, which consisted of a small group of about a dozen students, 11 of the 12 or so students always seemed to reach a consensus on most debated topics and would always jump all over the one student that had a differing opinion from the rest of us. Dr. Uriarte admonished all of us for ganging up on the one dissenting voice, pointing out that a room full of people with consenting opinions could often leave everyone blind, and that the one person that offered a dissenting voice was the most valuable person in the room. She lauded the one dissenting voice, right or wrong, for his was the only one that challenged the rest of us to exercise our brains, develop our critical thinking skills, and defend our positions on a regular basis. In fact, on the same day I posted this very article on my SmartKnowledgeU blog, ZeroHedge posted this video of a Yale University student, Jerelyn Luther, that literally screamed at a professor because she believed, of the professor, “It’s your job to create a place of comfort and home for the students”. Um, no it isn’t, confused student. If you truly believe that it’s the job of a professor to create a place of comfort and home for you, then you should have never pursued a learning experience and you should have just stayed within the sheltered confines and comfort of your parent’s home. The job of the professor, as so aptly pointed out by Dr. Uriarte, is to provide a learning environment that challenges, not coddles to, the comfort level of all students and develops their critical thinking skills.
If you take the time to examine the radical shifts happening in wealth distribution in every country in the world today, there is no doubt that something is fundamentally wrong with the pillars of capital markets, banking and money in every nation today. According to studies conducted by Oxfam, in 2010 the richest 388 people owned the same wealth as half of the entire world. By 2015, this number had shrunk to just 80 people. And by 2016, Oxfam has predicted, using current data, that the richest 1% of people will own the same wealth as the rest of the 7.3 billion people in the entire world. Obviously these massive disparities in wealth are not happening because of hard work. There is no way 1% of the entire world can hoard as much wealth as 7.3 billion people just by working hard, as some of the privileged recipients of this massive wealth redistribution cycle, like Australian mining magnate Gina Rinehart, would have us foolishly believe.
So what does wealth inequality have to do with education and our SmartWealth Academy? Everything. If you don’t understand why every nation in the world is experiencing, by leaps and bounds, the worst wealth inequality in human history, it is precisely because the knowledge we learn in business-focused school programs is generally of very low utility, and often even very harmful, to our ability to build wealth. There certainly is a very organized effort by the banking and political class to mislead us about how stock markets, commodity markets, real estate markets and real estate markets actually work. I learned this very quickly after graduating from an MBA program and entering the global banking industry, when I learned that nothing operated in the real world as I was taught to believe it did during my immersion in my classroom “education” environment.
None of us will never learn the truth about how financial markets truly operate in any traditional academic classroom in the world, because the richest people in the world fund universities and colleges and they do not want us to learn these truths, because such truths plant the seeds of dissent, revolution and freedom. Most people do not even understand that Industrialists implemented mass institutional schooling during the Industrial Revolution in the late 1700s to early 1800s as a means to fulfill their need for a steady mass supply of obedient and compliant workers to fill their factories. If you realize that this was the original intent of mass schooling, then it becomes infinitely easier to connect the dots and not to rest on the false and hollow laurels of graduating from a top-tier school as one’s answer in ever debate as to why one is correct and one’s opponent is wrong. Unfortunately, most teachers today do not even realize that they are complicit partners in an academic system designed to strip away critical thinking skills and instead replace critical thought, ingenuity and creativity with blind obedience and compliance to authority. Of course, there are always outstanding teachers and gifted students that survive and flourish within the academic system despite its social conditioning goals of instilling blind obedience and compliance to authority.
No school should ever have a “gifted” program that separates students that teachers have identified as having more potential, from students that teachers believe to have less potential. Every teacher, if they were educating their students properly and encouraging the development of their critical thinking skills and creativity, would realize that every single one of his or her students is gifted, and they would not create a false and artificial distinction between “gifted” and non-gifted students. Universities often spit out students that think in alarmingly similar terms instead of producing students with a diversity of opinions, thoughts, and ideas. Though they exist, is indeed the rare student and rare teacher that successfully finds a way to overcome the extremely stifling limitations of traditional academic curricula to allow a student’s creativity to blossom. I have no doubt that if our high schools, universities, colleges and graduate programs encouraged real thought and education and fostered classroom environments that encouraged creativity and divergent thinking and allowed students to customize their own curricula that awakened their passions instead of killed them, that every year, universities around the world would graduate 100 Steve Jobs, 100 Elon Musks, 100 Jeff Bezoses, and 100 Herve Hoppenots. Instead, traditional brick and mortar academic institutions fail miserably today to educate and inspire us.
In many cases, the institutional academic institution stops innovation dead in its tracks at its most basic level, when it is just an idea, never granting this idea the room to breathe and blossom and crushing all dissent to an accepted consensus. Unfortunately, innovation does not grow from consensus or an accepted methodology, but rather from radical, unproven ideas and from the ether of the unknown, the unchallenged and the realm of the previously impossible. When new ideas and beliefs are ridiculed, instead of tested and explored, we wallow in stagnant waters that kill creativity and innovation. Far too often today, I have found people dismiss any idea that clashes with their own beliefs without giving any credence that this new idea may be correct. And traditional academic education is largely responsible for this inflexible, privileged mindset in which we fail to ever challenge our current beliefs as possibly being erroneous. Just read the comments on YouTube of the below embedded video, and I am almost certain that there will at least be a smattering of comments that proves that our academic system churns out inflexible mindsets that hate to be challenged.
As an illustration of this point, let’s briefly explore an article I wrote on my SmartKnowledgeU blog more than five years ago that academics, and especially university economic professors, absolutely ridiculed at the time I wrote it. Because I predicted economic conditions in America four years into the future back then, and it is now 5 years later, we can now determine, with the benefit of hindsight, if I was right or if the university economic professors were correct in ridiculing my sentiments, without exploring even the slightest possibility that they would be wrong and I would be right. Here is the link to my article, “Delaying a College Education in this Economy is the Right Choice”, so you can read this article for yourself if you would like to do so. In any event, during the time I wrote that article, in May of 2010, US President Obama and dozens of American university economic professors were stating that the US economic recovery was well on its way, following the 2008 economic crisis, referencing job creation reports, housing start data, and the recovering US stock market as “proof” that the job market would be outstanding for university graduates in just a few years.
In stark contrast to this delusional viewpoint, I analyzed the data that the President and economic professors were quoting to build their argument of a strongly recovering economy, found the “official” government data of key economic indicators they were using to be highly suspect and greatly manipulated to build a false narrative, and therefore concluded the following. Here is a direct quote from my 2010 article:
“Since college students are already likely to end up living back at home with their parents after they graduate, as the job horizon will appear no better in four years than it is today (unless you believe the drivel of government officials and economists), why not spend that time immersed in self-education of how the financial and monetary systems really work? In the process, students will save their parents tens of thousands, or even hundreds of thousands of dollars, in tuition and save themselves the fate of being a sheep led to the slaughter by banking shills like Joseph Stiglitz, Paul Krugman and Jeffrey Sachs. Furthermore, students will be much better prepared to face the ongoing global economic crisis from not only a financial perspective but also from an educational perspective.”
I recall giving a couple of public speeches about this topic in Asia in 2010, and I was again ridiculed by a few economic professors in attendance. There were also many that supported my viewpoint, but I want to emphasize that career academics were often the ones that most strongly opposed me and were the quickest to insist that my viewpoints were foolish and wrong. Their blind acceptance of “official” US data that produced a consensus view that the US economy was getting much better led to their vehement opposition of the points I made above. As I had already analyzed the “official” data, I informed them that the official data was highly manipulated to paint a picture that bankers and politicians wanted to sell the public, and I even offered to explain, by using unemployment and GDP statistics, of how greatly these official statistics were manipulated away from any version of reality.
Instead of being interested in my non-consensus view, these professors stated that my views were very dangerous, because they might actually succeed in convincing potential students to delay college for four years and prevent them from entering, in their words, what they were certain would be, “one of the best job markets in US history”. These professors scolded me and told me that I would be responsible for ruining these student’s lives by preventing them from being ready to take advantage of one of the best US job markets in recent history. In fact, these professors were extremely upset that I even dared to challenge their views, because they were the self-anointed “authority” in such matters. To counter their arguments, my advice was never for the students to sleep all day, lie in bed and watch Game of Thrones, The Walking Dead, and House of Cards during all of their waking hours. My advice was for students to forego a four-year traditional university education and to spend that time engaging in self-education, concentrating on the subjects that would serve them and enable them to thrive in a continuing poor economy. I guess these professors believed that they were the only ones capable of providing students with this type of real education, even though history has proven these types of professors to be very rare at any traditional institution of academia.
If these professors truly believed that the only classroom that mattered in a person’s educational life was a brick and mortar classroom, then they should not be teaching. Tell William Kamkwamba, a kid that grew up in a small Malawi African village that was completely off the grid, and who built 3 windmills from gathering adhesive from blue gum trees and foraging public dumps for PVC tubes, car and bicycle parts, that the only classroom that matters is a traditional one. For William Kamkwamba, the most important classroom was a virtual one that existed in his imagination. The 3 windmills young William built in the classroom of life have put his village on the grid today by generating enough electricity to light several light bulbs in his family’s house, power radios and a TV, charge his neighbors’ cellphones, and pump water for the village’s fields and homes. However, this was not only the case for William in his small village in Malawi, but this was most definitely the case for yours truly who attended an Ivy League university and top graduate programs. By far, the greatest amount of my real learning and valuable attained knowledge occurred outside, not inside of, the brick and mortar classroom.
Here we are 5 years later in 2015 and here are the facts regarding my so-called“dangerous” advice that I provided in 2010. According to data gathered by David Pasch of Generation Opportunity, a non-profit organization that promotes economic opportunity in America, “If you look at the numbers starting in 2009, we’ve been in the longest sustained period of unemployment since the Bureau of Labor Statistics began collecting their data following World War II. This misconception that [the millienial generation] doesn’t want jobs or that we’re lazy and entitled is nonsense.” Pasch states matter-of- factly that millennials are receiving lower earnings compared with the nation’s median income, versus people of that age a decade ago. If you simply watch our SmartKnowledgeU_Vlog_009: Why It’s Such a Struggle to Make Ends Meet, you will actually discover that the reality of lower earnings is actually much more horrifying than it appears to be on the surface. Pasch continues: “We find that because of the difficulties facing millennials, they are delaying these important life decisions, like getting married, buying a home, starting a family.” A 25-year-old young American woman who recently earned a master degree is waitressing and sharing an apartment with a friend in Washington, D.C., while looking for a job better suited to her qualifications. She told Newseek magazine “It’s hard. They don’t want to pay you extra for your master’s. There are enough people with master’s degrees that they can require them.”
The fact that my stance turned out to be correct and the stance of many academic professors in 2010 could have not turned out to be any more wrong speaks much more to the fact that the “knowledge” many economics professors are teaching in schools around the world today is simply wrong. Even worse than the fact that this knowledge will hurt the ability of the students they are teaching to survive our current global currency wars is the fact that these professors are typically inflexible to even the possibility that they could be wrong. Understand the right knowledge, and anyone, even a 6-year old, could have predicted the same things I correctly predicted back in 2010. Remain close-minded, and teach this same level of close-mindedness about economic concepts, and these professors will unfortunately lead their students down a path of ignorance and blind obedience to tyrannical authority in the future.
The staff at the Carnevale Center at Georgetown recently stated that having a high school degree used to be enough to make it into the middle class, but that the bar is being set much higher today. They state that today’s generation is “the first generation that needs to have a college degree and experience to compete, before they even enter the workforce.” I highly disagree with this statement. The younger generation does not need a college degree to compete at all. The younger generation does not need MORE institutional classroom education of low utility, but it is in dire need of the right education to compete. But it is not just the younger generation that is indeed of real knowledge to survive. The older generation also needs the right education to understand how to properly preserve and grow the wealth they’ve saved as we enter a period of time in which the top 0.1% of every nation is seizing the entire nation’s wealth for only themselves. The older generation needs the right knowledge to know how to compete in a system that is rigged against them from the very start.
It is for this very reason that I spent the past 10 years of my life designing the SmartWealth Academy to demonstrate to every student that he or she is gifted enough to accomplish whatever he or she desires in life, despite perhaps having been negatively reinforced multiple times as he or she passed through the academic system with the false notion that he or she was not smart enough. To learn more about our soon-to-be-launched SmartWealth Academy, how you can nominate a student for a free SmartWealth Academy scholarship, and win a free membership for yourself, please watch the video below.
please click on the image above to watch the video
About the Author: JS Kim is the founder and managing director of SmartKnowledgeU, a fiercely independent research, consulting and education firm focused on helping Main Street understand and avoid the fraud of Wall Street by exposing the fraud of the global banking industry. This year our fee-based services have managed to return positive yields ytd by strategically shorting gold and silver markets and US stock markets. Don’t forget to sign up for our free SmartKnowledgeU newsletter and subscribe to our SmartKnowledgeU YouTube channel to keep up-to-date with our market views.
- The Problem With Education Today, by JS Kim
We will be introducing the SmartKnowledgeU SmartWealth Academy before the end of this year as an alternate and competitive education choice to not only all college and university business and all graduate MBA programs but also as an alternate choice to typical professional continuing education programs such as Certified Financial Planner and Chartered Financial Analyst programs, all of which we believe have very low utility in contributing to sound financial plans to cope with the ongoing Central Banking currency wars.
What is the SmartWealth Academy? The SmartWealth Academy is an online academy that I designed to make much of the current traditional business curricula taught in brick and mortar classrooms today entirely irrelevant. Education is one of the most important determinants of financial success in life. Yet, even though I attended an Ivy League university in America and earned two Masters degrees, an MBA and a Master in Public Policy, were I 18-years-old again and just entering college, I would quite happily choose to forego both my Ivy League university education and any knowledge I gained during the course of my two Master degrees. Why? Today, academia has devolved into much more of a business and a social conditioning lab experiment than an education lab that produces educated young men and women. I designed the SmartWealth Academy to return education back to a purpose that is has not served in over a century– preparing boys and girls, young men and young women, and adult men and adult women with all the requisite knowledge necessary to understand, cope with, and prosper from the extreme socioeconomic paradigm shifts we are experiencing today, a mission that traditional academia miserably fails to accomplish. Today, my understanding of financial markets is so superior to my level of understanding at the time I earned my MBA, that I now realize that no traditional schooling at all would have left me in a far better position to understand how global financial markets truly operated and how to truly preserve and build wealth during the course of my lifetime. Instead, I had to waste several years of my life just deprogramming myself from the ridiculous garbage I learned in my MBA program and to rid myself of the inflexible mindset that my professors had programmed into me before I could even truly start to learn the truths I am aware of today.
The dirty secret of the business academic world is that all the economic theory, marketing theory, accounting theory and statistical models they teach us in brick and mortar classrooms have very low utility in contributing to financial success later in life, though it certainly helps to provide for the multi-million dollar salaries of top University Presidents today. For example, the median earnings of alumni from my alma mater, the University of Pennsylvania, was reported at $78,000 a year in 2015. Comparatively speaking, University of Pennsylvania President Amy Gutmann raked in in over $2.8 million in salary in 2014, or about 36 times the median earning of a Penn graduate. This, despite, the fact that nearly all university business programs don’t reveal any relevant knowledge about the inner workings and mechanisms of asset prices in capital markets today, but instead still feed students that pay up to $100,000 a year for MBA degrees, outdated curricula and theory that no longer apply to a world that has radically changed due to technological developments such as dark pools and HFT algorithms that provide bankers with excessive competitive advantages not only over their clients, but also with advantages to conceal bankers’ theft from their clients. I have always conceded that degrees offering specialized knowledge in medicine, architecture, engineering, etc. are still valuable, but as far as traditional business degrees are concerned, I find little value in these bloviated, low-utility degrees.
In fact, more than five years ago, I wrote a 3-part series titled “The Astounding Failure of the US Educational System” and followed that series up with a 2011 article titled, “Everything I Learned About Succeeding in Business, I Learned Outside of the University Education System.”
Reactions of disdain from many business school professors regarding these series of articles only reinforced my belief that most professors working within the confines of traditional brick and mortar classroom business curricula were inflexible, set in their ways, and shut off to the possibility that they contributed very little to their students’ understanding of how today’s opaque financial markets truly operate.
I had concluded, after graduating from a top 15 MBA program in the US and a top 5 university, that the theory and case studies I learned in business school simply were not applicable to real world situations. Learning about the concepts of dark pools, high frequency trading algorithms, fractional reserve banking, the differences between sound money and unsound money, Central Bankers’ managed perceptions of asset price behavior, cognitive dissonance, and social conditioning, all topics that were self-taught outside the brick and mortar classrooms of business school, were integral in my ability to eventually free myself from the deceitful web of compliance and ignorance in which my traditional education had successfully entangled me. Albert Einstein once stated, “The value of an education … is not the learning of many facts, but the training of the mind to think something that cannot be learned from textbooks.” (Source: Frank, Phillip. Einstein, His Life and Times. Boston: De Capo Press, 2002.) Unfortunately, all traditional universities have devolved into the learning of facts, and often, the teaching of facts that are not even facts. For example, even though I attended so-called top-tier universities, I later discovered that 95% of the “facts” I learned about the monetary system and about the gold standard in school was completely wrong. So not only were the “facts” I learned of zero utility, but they actually were harmful to my understanding of how finance and capital markets actually operate, because they were wrong.
A journalism professor at the University of Texas at Austin, Dr. Mercedes Lynn de Uriarte, taught me one of my most valuable lessons in life at a young age. In my elective graduate-level journalism class, which consisted of a small group of about a dozen students, 11 of the 12 or so students always seemed to reach a consensus on most debated topics and would always jump all over the one student that had a differing opinion from the rest of us. Dr. Uriarte admonished all of us for ganging up on the one dissenting voice, pointing out that a room full of people with consenting opinions could often leave everyone blind, and that the one person that offered a dissenting voice was the most valuable person in the room. She lauded the one dissenting voice, right or wrong, for his was the only one that challenged the rest of us to exercise our brains, develop our critical thinking skills, and defend our positions on a regular basis. In fact, on the same day I posted this very article on my SmartKnowledgeU blog, ZeroHedge posted this video of a Yale University student, Jerelyn Luther, that literally screamed at a professor because she believed, of the professor, “It’s your job to create a place of comfort and home for the students”. Um, no it isn’t, confused student. If you truly believe that it’s the job of a professor to create a place of comfort and home for you, then you should have never pursued a learning experience and you should have just stayed within the sheltered confines and comfort of your parent’s home. The job of the professor, as so aptly pointed out by Dr. Uriarte, is to provide a learning environment that challenges, not coddles to, the comfort level of all students and develops their critical thinking skills.
If you take the time to examine the radical shifts happening in wealth distribution in every country in the world today, there is no doubt that something is fundamentally wrong with the pillars of capital markets, banking and money in every nation today. According to studies conducted by Oxfam, in 2010 the richest 388 people owned the same wealth as half of the entire world. By 2015, this number had shrunk to just 80 people. And by 2016, Oxfam has predicted, using current data, that the richest 1% of people will own the same wealth as the rest of the 7.3 billion people in the entire world. Obviously these massive disparities in wealth are not happening because of hard work. There is no way 1% of the entire world can hoard as much wealth as 7.3 billion people just by working hard, as some of the privileged recipients of this massive wealth redistribution cycle, like Australian mining magnate Gina Rinehart, would have us foolishly believe.
So what does wealth inequality have to do with education and our SmartWealth Academy? Everything. If you don’t understand why every nation in the world is experiencing, by leaps and bounds, the worst wealth inequality in human history, it is precisely because the knowledge we learn in business-focused school programs is generally of very low utility, and often even very harmful, to our ability to build wealth. There certainly is a very organized effort by the banking and political class to mislead us about how stock markets, commodity markets, real estate markets and real estate markets actually work. I learned this very quickly after graduating from an MBA program and entering the global banking industry, when I learned that nothing operated in the real world as I was taught to believe it did during my immersion in my classroom “education” environment.
None of us will never learn the truth about how financial markets truly operate in any traditional academic classroom in the world, because the richest people in the world fund universities and colleges and they do not want us to learn these truths, because such truths plant the seeds of dissent, revolution and freedom. Most people do not even understand that Industrialists implemented mass institutional schooling during the Industrial Revolution in the late 1700s to early 1800s as a means to fulfill their need for a steady mass supply of obedient and compliant workers to fill their factories. If you realize that this was the original intent of mass schooling, then it becomes infinitely easier to connect the dots and not to rest on the false and hollow laurels of graduating from a top-tier school as one’s answer in ever debate as to why one is correct and one’s opponent is wrong. Unfortunately, most teachers today do not even realize that they are complicit partners in an academic system designed to strip away critical thinking skills and instead replace critical thought, ingenuity and creativity with blind obedience and compliance to authority. Of course, there are always outstanding teachers and gifted students that survive and flourish within the academic system despite its social conditioning goals of instilling blind obedience and compliance to authority.
No school should ever have a “gifted” program that separates students that teachers have identified as having more potential, from students that teachers believe to have less potential. Every teacher, if they were educating their students properly and encouraging the development of their critical thinking skills and creativity, would realize that every single one of his or her students is gifted, and they would not create a false and artificial distinction between “gifted” and non-gifted students. Universities often spit out students that think in alarmingly similar terms instead of producing students with a diversity of opinions, thoughts, and ideas. Though they exist, is indeed the rare student and rare teacher that successfully finds a way to overcome the extremely stifling limitations of traditional academic curricula to allow a student’s creativity to blossom. I have no doubt that if our high schools, universities, colleges and graduate programs encouraged real thought and education and fostered classroom environments that encouraged creativity and divergent thinking and allowed students to customize their own curricula that awakened their passions instead of killed them, that every year, universities around the world would graduate 100 Steve Jobs, 100 Elon Musks, 100 Jeff Bezoses, and 100 Herve Hoppenots. Instead, traditional brick and mortar academic institutions fail miserably today to educate and inspire us.
In many cases, the institutional academic institution stops innovation dead in its tracks at its most basic level, when it is just an idea, never granting this idea the room to breathe and blossom and crushing all dissent to an accepted consensus. Unfortunately, innovation does not grow from consensus or an accepted methodology, but rather from radical, unproven ideas and from the ether of the unknown, the unchallenged and the realm of the previously impossible. When new ideas and beliefs are ridiculed, instead of tested and explored, we wallow in stagnant waters that kill creativity and innovation. Far too often today, I have found people dismiss any idea that clashes with their own beliefs without giving any credence that this new idea may be correct. And traditional academic education is largely responsible for this inflexible, privileged mindset in which we fail to ever challenge our current beliefs as possibly being erroneous. Just read the comments on YouTube of the below embedded video, and I am almost certain that there will at least be a smattering of comments that proves that our academic system churns out inflexible mindsets that hate to be challenged.
As an illustration of this point, let’s briefly explore an article I wrote on my SmartKnowledgeU blog more than five years ago that academics, and especially university economic professors, absolutely ridiculed at the time I wrote it. Because I predicted economic conditions in America four years into the future back then, and it is now 5 years later, we can now determine, with the benefit of hindsight, if I was right or if the university economic professors were correct in ridiculing my sentiments, without exploring even the slightest possibility that they would be wrong and I would be right. Here is the link to my article, “Delaying a College Education in this Economy is the Right Choice”, so you can read this article for yourself if you would like to do so. In any event, during the time I wrote that article, in May of 2010, US President Obama and dozens of American university economic professors were stating that the US economic recovery was well on its way, following the 2008 economic crisis, referencing job creation reports, housing start data, and the recovering US stock market as “proof” that the job market would be outstanding for university graduates in just a few years.
In stark contrast to this delusional viewpoint, I analyzed the data that the President and economic professors were quoting to build their argument of a strongly recovering economy, found the “official” government data of key economic indicators they were using to be highly suspect and greatly manipulated to build a false narrative, and therefore concluded the following. Here is a direct quote from my 2010 article:
“Since college students are already likely to end up living back at home with their parents after they graduate, as the job horizon will appear no better in four years than it is today (unless you believe the drivel of government officials and economists), why not spend that time immersed in self-education of how the financial and monetary systems really work? In the process, students will save their parents tens of thousands, or even hundreds of thousands of dollars, in tuition and save themselves the fate of being a sheep led to the slaughter by banking shills like Joseph Stiglitz, Paul Krugman and Jeffrey Sachs. Furthermore, students will be much better prepared to face the ongoing global economic crisis from not only a financial perspective but also from an educational perspective.”
I recall giving a couple of public speeches about this topic in Asia in 2010, and I was again ridiculed by a few economic professors in attendance. There were also many that supported my viewpoint, but I want to emphasize that career academics were often the ones that most strongly opposed me and were the quickest to insist that my viewpoints were foolish and wrong. Their blind acceptance of “official” US data that produced a consensus view that the US economy was getting much better led to their vehement opposition of the points I made above. As I had already analyzed the “official” data, I informed them that the official data was highly manipulated to paint a picture that bankers and politicians wanted to sell the public, and I even offered to explain, by using unemployment and GDP statistics, of how greatly these official statistics were manipulated away from any version of reality.
Instead of being interested in my non-consensus view, these professors stated that my views were very dangerous, because they might actually succeed in convincing potential students to delay college for four years and prevent them from entering, in their words, what they were certain would be, “one of the best job markets in US history”. These professors scolded me and told me that I would be responsible for ruining these student’s lives by preventing them from being ready to take advantage of one of the best US job markets in recent history. In fact, these professors were extremely upset that I even dared to challenge their views, because they were the self-anointed “authority” in such matters. To counter their arguments, my advice was never for the students to sleep all day, lie in bed and watch Game of Thrones, The Walking Dead, and House of Cards during all of their waking hours. My advice was for students to forego a four-year traditional university education and to spend that time engaging in self-education, concentrating on the subjects that would serve them and enable them to thrive in a continuing poor economy. I guess these professors believed that they were the only ones capable of providing students with this type of real education, even though history has proven these types of professors to be very rare at any traditional institution of academia.
If these professors truly believed that the only classroom that mattered in a person’s educational life was a brick and mortar classroom, then they should not be teaching. Tell William Kamkwamba, a kid that grew up in a small Malawi African village that was completely off the grid, and who built 3 windmills from gathering adhesive from blue gum trees and foraging public dumps for PVC tubes, car and bicycle parts, that the only classroom that matters is a traditional one. For William Kamkwamba, the most important classroom was a virtual one that existed in his imagination. The 3 windmills young William built in the classroom of life have put his village on the grid today by generating enough electricity to light several light bulbs in his family’s house, power radios and a TV, charge his neighbors’ cellphones, and pump water for the village’s fields and homes. However, this was not only the case for William in his small village in Malawi, but this was most definitely the case for yours truly who attended an Ivy League university and top graduate programs. By far, the greatest amount of my real learning and valuable attained knowledge occurred outside, not inside of, the brick and mortar classroom.
Here we are 5 years later in 2015 and here are the facts regarding my so-called“dangerous” advice that I provided in 2010. According to data gathered by David Pasch of Generation Opportunity, a non-profit organization that promotes economic opportunity in America, “If you look at the numbers starting in 2009, we’ve been in the longest sustained period of unemployment since the Bureau of Labor Statistics began collecting their data following World War II. This misconception that [the millienial generation] doesn’t want jobs or that we’re lazy and entitled is nonsense.” Pasch states matter-of- factly that millennials are receiving lower earnings compared with the nation’s median income, versus people of that age a decade ago. If you simply watch our SmartKnowledgeU_Vlog_009: Why It’s Such a Struggle to Make Ends Meet, you will actually discover that the reality of lower earnings is actually much more horrifying than it appears to be on the surface. Pasch continues: “We find that because of the difficulties facing millennials, they are delaying these important life decisions, like getting married, buying a home, starting a family.” A 25-year-old young American woman who recently earned a master degree is waitressing and sharing an apartment with a friend in Washington, D.C., while looking for a job better suited to her qualifications. She told Newseek magazine “It’s hard. They don’t want to pay you extra for your master’s. There are enough people with master’s degrees that they can require them.”
The fact that my stance turned out to be correct and the stance of many academic professors in 2010 could have not turned out to be any more wrong speaks much more to the fact that the “knowledge” many economics professors are teaching in schools around the world today is simply wrong. Even worse than the fact that this knowledge will hurt the ability of the students they are teaching to survive our current global currency wars is the fact that these professors are typically inflexible to even the possibility that they could be wrong. Understand the right knowledge, and anyone, even a 6-year old, could have predicted the same things I correctly predicted back in 2010. Remain close-minded, and teach this same level of close-mindedness about economic concepts, and these professors will unfortunately lead their students down a path of ignorance and blind obedience to tyrannical authority in the future.
The staff at the Carnevale Center at Georgetown recently stated that having a high school degree used to be enough to make it into the middle class, but that the bar is being set much higher today. They state that today’s generation is “the first generation that needs to have a college degree and experience to compete, before they even enter the workforce.” I highly disagree with this statement. The younger generation does not need a college degree to compete at all. The younger generation does not need MORE institutional classroom education of low utility, but it is in dire need of the right education to compete. But it is not just the younger generation that is indeed of real knowledge to survive. The older generation also needs the right education to understand how to properly preserve and grow the wealth they’ve saved as we enter a period of time in which the top 0.1% of every nation is seizing the entire nation’s wealth for only themselves. The older generation needs the right knowledge to know how to compete in a system that is rigged against them from the very start.
It is for this very reason that I spent the past 10 years of my life designing the SmartWealth Academy to demonstrate to every student that he or she is gifted enough to accomplish whatever he or she desires in life, despite perhaps having been negatively reinforced multiple times as he or she passed through the academic system with the false notion that he or she was not smart enough. To learn more about our soon-to-be-launched SmartWealth Academy, how you can nominate a student for a free SmartWealth Academy scholarship, and win a free membership for yourself, please watch the video below.
please click on the image above to watch the video
About the Author: JS Kim is the founder and managing director of SmartKnowledgeU, a fiercely independent research, consulting and education firm focused on helping Main Street understand and avoid the fraud of Wall Street by exposing the fraud of the global banking industry. This year our fee-based services have managed to return positive yields ytd by strategically shorting gold and silver markets and US stock markets. Don’t forget to sign up for our free SmartKnowledgeU newsletter and subscribe to our SmartKnowledgeU YouTube channel to keep up-to-date with our market views.
- Paul Craig Roberts: "The Matrix" Extends Its Reach
Submitted by Paul Craig Roberts,
The remnant of the American left has again fallen in with the official terror story of the Paris attacks, because the official story serves the left-wing’s denunciatory needs. I see that the Russians as well are on board with the official story as it serves their posture that we must all unite against terrorism. Amazing. Washington can rely on the world’s total blindness.
Within one hour of the Paris attacks and without any evidence, the story was set in stone that the perpetrator was ISIL. This is the way propaganda works.
When the West does it, it always succeeds, because the world is accustomed to following the lead of the West. I was amazed to see, for example, Russian news services helping to spread the official story of the Paris attacks despite Russia herself having suffered so often from planted false stories.
Has the Russian media forgotten MH-17? The minute the story was reported that the Malaysian airliner was hit by a Russian missile over eastern Ukraine in the hands of separatists, the blame was ascribed to Russia. And that is where the blame remains despite the absence of evidence.
Has the Russian media also forgotten the “Russian invasion of Ukraine”? This preposterous story is accepted everywhere in the West as gospel.
Has the Russian media forgot about the book by the German newspaper editor who wrote that every European journalist of consequence was an asset of the CIA?
One would have thought that experience would have taught Russian media sources to be careful about explanations that originate in the West.
So now we have what is likely to be another false story set in stone. Just as a few Saudis with box cutters outwitted the entire US national security state, ISIL managed to acquire unacquirable weapons and outwit French intelligence while organizing a series of attacks in Paris.
Why did ISIL do this? Blowback for France’s small role in Washington’s Middle East violence? Why not the US instead?
Or was ISIL’s purpose to have the flow of refugees into Europe blocked by closed borders? Does ISIL really want to keep all of its opponents in Syria and Iraq when instead it can drive them out to Europe? Why have to kill or control millions of people by preventing their flight?
Don’t expect any explanations or questions from the media about the story that is set in stone.
The threat to the European political establishment is not ISIL. The threats are the rising anti-EU, anti-immigrant political parties: Pegida in Germany, the UK Independence Party, and the National Front in France. The latest poll shows the National Front’s Marine Le Pen leading as the likely French president.
Something had to be done about the hordes of refugees from Washington’s wars, or the establishment political parties faced defeat at the hands of political parties that are also unfriendly to Europe’s subservience to Washington.
EU rules about refugees and immigrants and Germany’s acceptance of one million of the refugees, together with heavy criticism of those governments in Eastern Europe that wanted to put up fences to keep out the refugees, made closing borders impossible.
With the Paris terror attacks, what was impossible became possible, and the President of France immediately announced the closing of France’s borders. The border closings will spread. The main issue of the rising dissident political parties will be defused. The EU will be safe, and so will Washington’s sovereignty over Europe.
Whether or not the Paris attacks were a false flag operation for the purpose of obtaining these results, these results are the consequences of the attacks. These results serve the interests of the European political establishment and Washington.
Is ISIL so unsophisticated not to have realized that? If ISIL is that unsophisticated, how did ISIL so easily deceive French intelligence? Indeed, can French intelligence be intelligent?
Can Western peoples be so unintelligent to fall for a story set in stone prior to any evidence? In the West, facts are created by self-serving statements from governments. Investigation is not part of the process. When 90 percent of the US media is owned by six mega-corporations, it cannot be any different.
As The Matrix grows in the absurdity of its claims, it nevertheless manages to become even more invulnerable.
- An Infographic Look At Russia's Advanced Anti-Aircraft Missile Defense System
A few days ago, The Daily Mail reported that Moscow had deployed S-400 air defense systems to Latakia. Here was the “proof”:
And here’s some color from the article:
Vladimir Putin has deployed an advanced anti-aircraft missile defense system to Syria with a range capable of taking down jets as far away as Tel Aviv.
The Russian military released photographs of the S-400 Air Defense System, known to NATO as SA-21 ‘Growler’, at the Latakia Airbase on the Syrian coast.
The advanced missile system, which is understood to have a maximum range of 250 miles is capable of bringing down an aircraft at a maximum altitude of 90,000 feet – which is more than twice the height of a cruising passenger airliner.
Russian analyst Yury Barmin said on Twitter: ‘Alleged S400 complex radar was spotted at the Russian air base in Latakia. Another “accidental” leak by Russia’s MoD.
‘By deploying S400 to Latakia, Russia sends signal to Turkey and Israel but also creates a shield over Syria’s coastal areas.’
The S-400 is also able to intercept cruise missiles and other potential airborne threats.
It is also believed to be a major threat to military aircraft such as the RAF Tornado and the US Air Force F-15 and F-16.
The obvious implication there is that Russia has built up its capabilities at Latakia in order to threaten US, British, and now perhaps French fighter jets and maybe even to deter Israel from targeting Hezbollah.
On the one hand, it’s not exactly like ISIS has an air force, but then again, do you really want to roll out your military hardware, build an airbase, and not have the capability to defend it when there are multiple nations (some of which are hostile) flying combat missions in the same country?
In any event, the Russian Defense Ministry has denied reports that there are S-400s in Syria. Here’s what Maj. Gen. Igor Konashenkov told foreign reporters visiting the base:
“You had the opportunity to see everything here with your own eyes…There are no S-400s here, and never have been.
Before attempting to scare the British public and the world with the deployment of our S-400 air defense system here, they should have consulted Wikipedia or the site of the Russian defense ministry as to how this system looks like.”
Well, because we’d hate for readers to get a similar scolding from Konashenkov, we present the following infographic which should tell you everything you ever wanted to know about the S-400:
- Guest Post: Gold, Oil, & 'Grandmaster' Putin's Trap
In December of last year we published an intriguing article by Dmitry Kalinichenko, “Grandmaster Putin’s Trap,” which has drawn far more attention from readers than we ever expected. It continues to be cited by many international political and economic experts. That article addressed Russia’s latent strategy to get rid of US bonds and use its petrodollars to buy monetary gold. It seemed for a while that the ruble’s nosedive late last year, coupled with the Kremlin’s reduced fiscal space, has left Moscow unable to pursue its plan to permanently diversify the international financial system. Nevertheless, taking a look at 2015, it turned out that Putin’s strategy is working quite well.
Due to invisible market’s hand the gold-to-oil price ratio has more than doubled in the past two years. While in May 2014 it costed 12 barrels of oil to buy one ounce of gold, this ratio rose to 26 barrels/ounce in January 2015 (where it currently remains). By lowering the price of oil relative to gold, it looks like Wall Street & London’s City are trying to hamper Russian tactic of buying gold in exchange for oil and natural gas (gas prices are linked to oil via BTU). However, these actions fell short of their goals.
Declining oil prices and a depreciating national currency have not led to a slowdown in the Bank of Russia’s gold purchases on the domestic market for rubles. Despite threats and sanctions, Russia has continued to add to its gold reserves. Bank of Russia bought a record 171 tons of gold in 2014 and another 120 tons in the first ten months of 2015. Consequently, by Nov. 1, 2015 the Bank of Russia had accumulated a total of 1,200 tons of gold in its reserves, which are officially the fifth largest in the world, although in reality Russia is actually in 4th place, as Germany is allowed to store only one-third of its reserves at home. In fairness it should be noted that China has not provided updated data on its gold reserves since 2009, when it officially possessed 1,054 tons. According to some estimates, Chinese reserves may have tripled since than.
Monetary gold in Bank of Russia reserves since 1995, in millions US$. Source: CBR.RU
The year 2014 brought Wall Street yet another unpleasant surprise. Russia emerged as the world’s second biggest gold producer, surpassed only by China. China and Russia’s global leadership in gold mining enables them to create their own currency and trading systems, built on a solid foundation of gold, which will be used by the BRICS countries as a universal unit of account and as a fixed measure of cost.
Faced with the prospect of having to grapple with a powerful Russian-Chinese gold alliance soon that will call into question the dollar’s future as global reserve currency, the United States has begun to employ all its traditional punitive measures against a country that has dared to challenge America’s financial clout in the world. Ignore all the blather about “democratic values” – these measures are nothing but a way to force Russia to sell gold.
The Russian people have heard Washington’s ultimatum and understand it perfectly: the US has imposed sanctions in order to oust the legitimate and democratically elected government in Moscow. But not surprisingly, the sanctions levied by the US against the Russian public – at great cost to the EU – have had the opposite effect. Russians have rallied around their nation’s leader, and China and Russia are now closer than ever before. The foreign policy of dictatorship of unmitigated arrogance, so fecklessly conducted by Washington, has had the expected consequences. By habitually and universally replacing the force of law with the right of force, the US has bungled away all of the political capital and credibility it had previously earned among the Russian and Chinese public.
It is China’s support of Russia’s position that is neutralizing all of Washington’s attempts to lean on Moscow. Even if Russia is forced to sell gold, it will sell it … to China, meaning that it will remain within the “gold alliance.” It is noteworthy that President Xi Jinping’s September visit to the US has not led to any substantial agreements. China is well aware that if Washington is able to sever the alliance between Russia and China, the first action of a Russia’s hypothetic pro-US government would be putting an energy garrote on China’s neck. Wall Street needs to colonize Russia first in order to subsequently colonize China. China’s leaders understand this very well. Incidentally, the same fate awaits Europe, which is yet another geopolitical competitor of the US. However, unlike Beijing, Europe’s leaders have not yet figured this out.
It is important to keep in mind that the dollar’s attacks on gold end always end the same way – in a painful knockout for the dollar. There have been no exceptions to this rule throughout monetary history. Nor will there be this time. Hence the well-known market rule: “Any maximum of the gold price is not the last one.” It would be naive to believe that this golden rule is unknown to that grandmaster of patience, Vladimir Putin, and to Xi Jinping. By systematically increasing their gold reserves, Russia and China are relentlessly moving forward to strip the US dollar of its status as a global reserve currency.
America’s standard military solution won’t work in this situation. Russia is not Iraq, Libya, or Yugoslavia. Were the US to launch direct aggression against a country like Russia, that would be their last move ever. Therefore, the White House is trying to use radical militants from Muslim and European countries as cannon fodder. There was a time when that approach was more effective. In the mid-twentieth century, Wall Street & London’s City managed to drag Europe into a war against the Soviet Union using their protégé Hitler, whom they had literally brought to power in Germany. Today Ukraine and Syria are the theaters for America’s hot war against Russia, and the European Union is the theater for America’s economic war against Russia (it is noteworthy that while European entrepreneurs are suffering under the sanctions imposed on Russia, their American competitors are busy signing lucrative new deals with Moscow).
Recently, European countries have begun to realize that Washington is simply conning them. After all, any product is, first and foremost, nothing but energy manifested in the form of a commodity. Taking its cue from America’s geopolitical ambitions, Europe is single-handedly reducing its own level of competitiveness. If we peel away the lofty slogans and declarations about “values” and just consider the dry economics of the matter, everything becomes clear: if the EU is cut off from its supply of cheap Russian energy, in addition to being cut off from the massive Russian market for its goods, Europe will not be able to survive in its present form.
Wall Street & London’s City, as before, do not know what Putin has in mind. But everyone is quite certain that Putin is up to something, and whatever that is will surprise everyone and advance the interests of Russia and its allies.
Trying to make sense of Putin’s and his counterpart Xi Jinping’s actions, Bloomberg published an interesting article six months ago about the future of the gold market:
“It would probably have to be very different than an old gold standard,” Kenneth Hoffman, the Princeton-based head of global metals and mining research at Bloomberg Intelligence… “It wouldn’t be a traditional system where you walk into a bank and you walk out with an ounce of gold. It would have to be something new and different.”
Predictions by leading Western media outlets about the imminent emergence of a Russian-Chinese alliance to revive the gold standard are heard often enough that they now seem like signals or even calls for such a step, addressed to Moscow and Beijing.
Back in the 18th century, the philosopher and writer Voltaire stated: “Paper money eventually returns to its intrinsic value – zero,” and he was absolutely right. There have been many different paper currencies throughout the history of mankind. But all of them, in one way or another, eventually reverted to zero and vanished. Those who lived during the reigns of such historical figures as Alexander the Great, Napoleon, Hitler, and Stalin honestly believed that the currency existing at that time would remain in circulation forever. But not one of those currencies still exists. And all that today’s dollar and ruble have in common with their previous incarnations from 100 years ago is the fact that their names are unchanged.
The modern dollar and ruble are entirely different currencies, with different purchasing power, and a different appearance. Some currencies die off suddenly, some revert to zero through gradual depreciation, but somehow or other they are all worth nothing in the end. Obviously, the enfeebled US dollar that has lost 98% of its purchasing power in the last 40 years (as just another unsecured pseudo-currency) is already on the brink of its natural devolution to zero.
This argument is increasingly used by advocates of a return to the gold standard. However, they forget that all gold currencies previously in circulation eventually died just as surely as the paper currencies. Why did this happen, since the gold currencies were secured by the gold they physically contained? Because any gold currency is, first and foremost, a currency with a designated value, not money based on the weight of the gold contained in those coins!
Gold currencies had a fiat value represented by the denomination embossed on them, which imposed a legal duty on all market players. This duty required that they use all gold coins exclusively as currency, with a face value specified and assigned by law. But eventually an inevitable inconsistency emerged between the market value of the gold contained in the coin in accordance with its weight vs. the fiat value of the denomination that was embossed on the gold coin itself. This inconsistency has spelled the end for every single form of gold currency throughout humanity’s monetary history. There are no exceptions to this rule, which is well known on Wall Street. It is critically important for that crowd that Russia and China be goaded into minting yet another doomed gold currency. As soon as Russia and (or) China issues such a gold currency, it will be immediately attacked by Soros and other speculators in Wall Street’s pocket like him. Whatever the face value, in rubles or yuan, that is embossed on the gold currency of Russia or China, after a while that value will begin to diverge from the value of the gold within the coin. It will become profitable for speculators to cyclically exchange paper currency for gold currency, which will deplete the country’s gold reserves and consequently lead to default.
As the situation currently stands, there is no one in the world who can answer this ostensibly simple question: why, knowing that it is not feasible to mint a gold national currency, are Russia and China continuing the rush to build up their gold reserves? Right now no one in the world knows that…. except Putin himself and his colleague Xi Jinping…
- College Campuses & "Safe Spaces" – Circling The Drain Of The Sanity Toilet
Presented with little comment, aside to say, WTF!!!
Having posted the following rather too honest (and hilarious) cartoon…
PC CENSORSHIP FACEBOOK has removed "CryBullies"from my FB pages saying it "violates" their "Community Standards!" pic.twitter.com/QjxhA3V3yE
— GrrrGraphics (@GrrrGraphics) November 14, 2015
Ben Garrison noted that Facebook has "censored" it from his pages…
And then Paris happened, which appears to have upset the Social Justice Warriors at The University of Missouri… but not for the reasons you'd expect…
Black Lives Matter and Mizzou protesters responded to the murder of scores of people in Paris at the hands of Islamic extremists by complaining about losing the spotlight and saying their “struggles” were being “erased.” Their struggles, remember, consist of a poop swastika of unknown provenance and unsubstantiated claims of racially-charged remarks somewhere near Missouri’s campus.
So debased has the language on American campuses become that these incidents, which many observers believe to be hoaxes, just like previous campus scandals celebrated by progressive media, are being referred to as “terrorism” and a “tragedy” by moronic 20-year-olds who have never been told, “No.”
The creation of this special kind of narcisistic insanity was capttured by one artist…
All of which implies the endgame for this idiocy unless common-sense somehow re-emerges…
Source: @GrrrGraphics, Townhall.com, Breitbart
- Depression Tracker: Brazil Braces For Big Week Of Bad Data
Late last week, Brazil was back in the spotlight on speculation about the future of embattled finance minister Joaquim Levy.
The BRL can’t seem to decide if the uncertainty surrounding a Levy exit should outweigh any optimism around a Henrique Meirelles appointment, and it all comes against the backdrop of Brazil’s stagflationary nightmare that has plunged one of the world’s most important emerging economies into what, on some measures, certainly looks like a depression.
To be sure, the pace at which the situation continues to deteriorate in terms of Brazilian economic data has been something to behold and indeed, many fear the combination of rising unemployment and overleveraged households could be a ticking time bomb especially in places like the southern end of Sao Paulo, where, as Bloomberg documented last month, people like 43-year old steelworker Rossini Santos are now relying on unemployment insurance to service debt incurred to buy small homes and cars.
This week, we’ll get a fresh look at three key Brazilian depression recession trackers: GDP, inflation, and unemployment. Here’s Goldman with the preview and a few charts which serve to underscore the malaise.
* * *
From Goldman
The central bank will release on Wednesday the IBC-Br monthly real GDP indicator. We expect real GDP to decline 0.6% mom sa in September; the fourth consecutive monthly decline. This would be consistent with a 1%-plus qoq sa decline in real GDP during 3Q2015, and a contraction of real GDP during 2015 topping 3%.
IPCA-15 inflation will be released on Thursday and we forecast a high reading of 0.87%. Our forecast implies headline inflation would come in at a very high 10.3% yoy; which would be the highest print in more than a decade (since Nov 2003).
Finally, on Thursday IBGE will release the October labor market report. We expect the unemployment rate to increase to 7.6% in October, up from 4.7% a year ago and the highest print in seasonally adjusted terms since September 2009. We expect the labor market to deteriorate further in 2015 and 2016.
* * *
So, running that down, it’s likely we’ll see, i) fourth consecutive monthly decline in GDP, ii) highest inflation print in nearly 11 years, iii) highest seasonally adjusted unemployment since September 2009.
As those who’ve followed this story closely may be aware, Goldman’s Alberto Ramos has a way of employing a kind of subtle, deadpan humor when it comes to explaining the situation in Brazil. The sad fact is that when you list all of the country’s problems, it invariably comes across as comical. Case in point:
The recessionary dynamics are forecasted to extend into 2016. We expect the economy to continue to face strong headwinds from higher interest rates, exigent financing conditions, high inflation, significant labor market deterioration, higher levels of inventory in key industrial sectors, higher public tariffs and taxes, high levels of household indebtedness, weak external demand, soft commodity prices, political uncertainty, and extremely depressed consumer and business confidence.
On the other hand…On the positive side, a more competitive exchange rate and weak domestic demand conditions should gradually lift the contribution of net exports to growth and provide a floor for the expected contraction of real GDP in 2015.
- "It's Different This Time" Or "Same As It Ever Was"
Over the past few years when it’s come to any criticism of business models, valuations, or other concerns encompassing the social media space, along with other dubious “hacking” inspired businesses emanating from Silicon Valley, the immediate rebuttal posed fell along the lines of first being looked as “you just don’t get it” (or just crawled out from under some rock) followed with, “It’s different this time.”
If one posed any real push back as to move nebulous assertions out from the sky and back into more true ledger accounting? Those “looks” turned into outright disdain, and disgust followed with ridicule as the assertions of “It’s different…” and “You just…” morphed into closing statements as to implicitly cement the questioning door closed. For to go any further, it was a waste of their time and/or breath. After all, why try to prove you’re right when today’s version of the teenage “Because! Just because!” works just as handily.
Over the past few years that defense has worked splendidly. Only problem? Just like with teenagers; there comes a time it no longer works. This is where the once go-to responses begin to work against – not for. Welcome to same as it ever was. Or, one could say, “Welcome back to reality.” Where nebulous business plans no longer attract attention never-mind – cold hard cash.
As a matter of fact, what has been recently embraced as some entrepreneurial birthright in Silicon Valley (i.e., VC funding at the whim) seems to be going the way of “Because…” itself.
You’re not hearing precise reasoning or explanations for it (although the reasons are as clear as day: No QE.) However, what you are beginning to now see are the inevitable storm clouds moving from the horizon, and making landfall. All one needs to do is get their heads out-of-the-clouds and start reading the writing on the walls right in front of them. For the messages they portend are writ large – if one wants to see. Here are a few that have caught my attention…
A few weeks ago I was watching a Bloomberg™ morning show where the guest was one of social media’s well-known aficionados. (I’m not being coy by not naming, it really doesn’t matter) During the discussion there were a few things that struck me. One was the on air tension. It seemed the more the questioning – the more antagonist or dismissive the retorts became. Another was in response to a question about Twitter™. The response? “Do people even use Twitter any longer?” For he implied he’d already moved from there to another platform. Which in many ways validates what I’ve stated for years and have been publicly scorned for: “When the price is free – loyalty is as enduring as a Unicorn’s balance sheet is real.”
Another point to ponder is this: Let’s put aside anything IPO for a moment and look directly at the VC funding meme. Remember (for it wasn’t all that long ago) when those in the VC world were being touted as some form of Superheros to the rescue? As a matter of fact one prominent website to this very topic sported a drawing depicting many as just that with capes, costumes, and more.
It seems that maybe there’s just a few too many seeking
their birthrightVC money in today’s market environment.Just 12 months ago VC firms and others would be hosting “come one – come all” stylized events or meetings as to vet the latest group to be showered with some form of initial funding. The game (as I had written about previously) had morphed into more of a numbers game funded via the hot money provided by the Fed’s ongoing QE policy. i.e., Throw money at all of them, for the IPO’ing of just one will make all sins disappear. However, that meme is showing signs it to is going the way of “its different this time.”
Today you don’t need to look deep (for it’s everywhere if you want to see.) All you need to do is look. There are articles sporting titles along the lines of “Why you shouldn’t seek VC money” and more. And not from obscure names. Some are from the very people who only months ago were depicting as VC superheros. Quite a shift and peculiar timing one might infer, no?
So what about “everything social?” After all, social media is the “be all – end all” platform in which all dreams are made (and cashed out.) Again, after all, everyone still instinctively points to Facebook™ as the continuation of promised milk and honey. “Just look at their stock price!” is shouted. Another is “Just look at mobile: they’re killing it!” “You don’t understand: it’s different this time!” Sure it is. All I’ll point to for a contrasting argument is AOL™.
Facebook currently sports a market cap larger than GE™, Johnson & Johnson™, Walmart™, and a host of others. These are not trivial companies by any stretch. However, there is one very distinct difference that should not be lost. They sell products and buy ads. Facebook primarily sells only ads (and all your data but that’s for a different discussion.) In the last bubble AOL also fell into this same paragon of ad-based business models. It was unique, email was “the hottest thing.” Banner ads (remember those) was the next be all, end all to advertising. Till – it wasn’t.
AOL-Time Warner™ stood with a market cap of some $350 BILLION dollars in 2000. It was for all intents and purposes “the king” of ad sales in the every growing, and developing, tech based medium. Then, the bubble burst (i.e., the recession took hold) and ad sales literally dried up crushing AOL and anyone else supported purely on an “ad” model.
Yet, let’s not forget about the one thing that takes place right before such a hatchet bears down on ad revenues that many just don’t contemplate. For AOL did have real ad sales as does Facebook. And right before the bottom fell out AOL was also (much like Facebook is today) being pushed ever higher in valuation.
That “thing” is this: Right before the axe falls – the preceding volume of ad buying becomes more concentrated. Any and all peripheral ad money gets bundled and focused into one medium more than the others in what could be classified as a “Hail Mary” seasonal cycle buy. This is how I look at Facebook’s latest earnings report. The meme of “they’re just killing it/firing on all cylinders” hearkens to my ears just what happened before the implosion of “everything dot-com.”
I am still of the belief the “everything social” is not “it’s different this time” but more of “the same as it ever was.”
The latest retail sales report wasn’t bad – it was horrible. Once again missing expectations. But there’s a much bigger problem. More and more retailers are reporting abysmal earnings reports. Macy’™, Nordstrom™, Walmart™ and others are reporting nothing more than anyone with a shred of common sense knows intuitively as summed up so succinctly by retail maven Howard Davidowitz when speaking on the challenges of retail malls: “…what’s going on is the customers don’t have the fucking money. That’s it. This isn’t rocket science.”
Current ad spending by retailers as of this writing I believe fits into the same description echoed by Mr. Davidowitz: It’s not rocket science.
Facebook and a few others are going to be the go-to recipients of any and all “Hail Mary” ad buys for this coming earnings quarter and holiday season. Just like with what has taken place with previous assigned “Holy Grail” inspired ad platforms.
If retail sales for this shopping season mirror anything close to what this past report portends? Again, just look to AOL post 2000 for hints. Ad revenue went from robust to abysmal in the blink of an eye.
In 2001 AOL was still considered “the hottest, biggest, bad ass of everything ad/internet generating revenue.” By 2002 it’s $2.3 BILLION in ad revenue would be cut in half. Then just a year later it would fall even further to nearly cutting itself by another third if not half once again. Till finally AOL became “Who?”
For comparison: Facebook is now just about the same size in market cap as AOL was in 2000. The parallels are striking if one dares to look back with any quantitative as well as qualitative analysis eschewing any “it’s different this time” reasoning.
For further clues I’ll only point just a few more…
First: Isn’t it just a little odd or, at the least something that makes you go Hmmmmm when none other than one of the most prominent cheerleaders of everything VC and/or social Marc Andreessen sells 73% of his Facebook stock in the last two weeks?
If that doesn’t inspire a change in thinking maybe the following will. For if there’s anything to be gained for insight such as the much touted “front page article” to mark a bubble. How about the very week Facebook hit its peak share price the following was reported with great fanfare. To wit: President Obama announces launch of his very own Facebook page.
Remember, government has been shown to be with near Swiss watch precision – the last to arrive to the party.
Oh, and one last point just for a little more context. Remember I said at the beginning of this article to put aside anything IPO for the moment? I was scorned and ridiculed by many (especially those within The Valley itself) when I penned an article titled, “Crying Towels: Silicon Valley’s Next Big Investment Op” Yet, a funny thing has shown itself on its way to “Unicorn paradise.”
The much-anticipated IPO of Square™ was announced. The issue? The price is some $2 BILLION less (i.e., at a 30% discount) to its latest private funding round for valuation. That while simultaneously the other company Mr. Dorsey is heading up as CEO (Twitter) once again falls below its IPO price. So now, with all that said, the only question one needs to ask and answer is this:
It’s different this time? Or: same as it ever was?
We’re going to find out much sooner than later. That I’m sure of.
- Meet The Family That Just Spent Half Its Annual Income Paying For Obamacare
Not a week passes without some incremental revelation showing precisely what happens when Congress passes a bill just to see what's in it.
Well, since the passage of the Affordable Care Act, also known as the Obamacare tax, we have watched in horror as shocker after shocker are revealed.
Some examples:
- In Latest Obamacare Fiasco, Most Low-Income Workers Can't Afford "Affordable Care Act"
- The Stunning "Explanation" An Insurance Company Just Used To Boost Health Premiums By 60%
- Your Health Insurance Premiums Are About To Go Through The Roof -The Stunning Reason Why
- Obama Promised Healthcare Premiums Would Fall $2,500 Per Family; They Have Climbed $4,865
- Largest Health Insurer On Colorado Exchange Abruptly Collapses
- Co-Op Insurers Across America Are Collapsing, And Now There Is Fraud
- "$19,000 Premiums, Up 4x Since Passage": The 'Crippling Effect' Of Obamacare On The Middle Class
Now we can add one more thing that "was in it": soaring deductibles, which give the fake impression of contained, low all-in costs… until one actually needs expensive medial help (and these days there is no other kind).
The latest expose against Obamacare comes not from its usual nemesis, but the hard-left NYT, suggesting that even the ideological supporters of Obama's "crowning achievement" are losing faith. To wit:
Obama administration officials, urging people to sign up for health insurance under the Affordable Care Act, have trumpeted the low premiums available on the law’s new marketplaces.
But for many consumers, the sticker shock is coming not on the front end, when they purchase the plans, but on the back end when they get sick: sky-high deductibles that are leaving some newly insured feeling nearly as vulnerable as they were before they had coverage.
“The deductible, $3,000 a year, makes it impossible to actually go to the doctor,” said David R. Reines, 60, of Jefferson Township, N.J., a former hardware salesman with chronic knee pain. “We have insurance, but can’t afford to use it.”
In many states, more than half the plans offered for sale through HealthCare.gov, the federal online marketplace, have a deductible of $3,000 or more, a New York Times review has found. Those deductibles are causing concern among Democrats — and some Republican detractors of the health law, who once pushed high-deductible health plans in the belief that consumers would be more cost-conscious if they had more of a financial stake or skin in the game.
“We could not afford the deductible,” said Kevin Fanning, 59, who lives in North Texas, near Wichita Falls. “Basically I was paying for insurance I could not afford to use.” He dropped his policy.
In other words, Obamacare's "affordable care" is affordable, as long as one doesn't actually have to use it!
Here is the damage when one does:
- In Miami, the median deductible, according to HealthCare.gov, is $5,000.
- In Jackson, Miss., the comparable figure is $5,500.
- In Chicago, the median deductible is $3,400.
- In Phoenix, it is $4,000;
- In Houston and Des Moines, $3,000.
Considering far more than half the US population has less than $1,000 in savings, there are quite literally tens of millions of people who are one ER visit away from the poor house. And they are unhappy. But at least the liberal think tanks have words of advice:
To those worried about high out-of-pocket costs, Dave Chandra, a policy analyst at the liberal-leaning Center on Budget and Policy Priorities, has some advice: “Everyone should come back to the marketplace and shop. You may get a better deal.”
But you almost certainly won't, because the whole structuring of Obamacare was to lower future costs at the expense of a surge in deductible payments, aka the oldest trick in the insurance book. And America fell for it.
So here is what happens when one does find out what is in the "affordable" care law, after it was passed.
Meet Mr. Fanning, from North Texas, who said he and his wife had a policy with a monthly premium of about $500 and an annual deductible of about $10,000 after taking account of financial assistance. Their income is about $32,000 a year.
The Fannings dropped the policy in July after he had a one-night hospital stay and she had tests for kidney problems, and the bills started to roll in.
And just like that a family of two spent half their annual income on insurance and deductibles courtesy of the "Affordable" care act.
It gets better:
Another consumer, Anne Cornwell of Chattanooga, Tenn., said she was excited when Congress passed the Affordable Care Act because she had been uninsured for several years. She is glad that she and her husband now have insurance, because he has had tonsil cancer, heart problems and kidney stones this year.
But with a $10,000 deductible, it has still not been easy.
Her conclusion: "When they said affordable, I thought they really meant affordable," she said.
Nothing more to add.
- Companies Vs. Countries: Comparing US Corporate Market Caps To Emerging Markets
Back in July, during the depths of Greece’s fraught bailout negotiations, BofA made a rather amusing observation:
“The market cap of MSCI Greece is now the same as Bed, Bath and Beyond” – BofA
— zerohedge (@zerohedge) July 2, 2015
That’s pretty astonishing, although we’ll admit that during June and July, choosing between spending an afternoon in Athens and spending an afternoon in a Bed, Bath, and Beyond would have indeed been a tough call.
Well, if you’ve ever wondered how your favorite US corporations stack up against the entire MSCI free float market cap of the world’s emerging economies, BofAML has the complete map for your viewing pleasure, presented below without further comment:
- What Hath The Fed Wrought?
"Absent the performance on FOMC days, the stock market has gone nowhere in 17 years. If you're a believer in capitalism and free markets, you sit back and think about that statistic for a moment and ask yourself – 'have I really made any money without The Fed?'"
Since gold peaked in 2011, there have been 37 Fed meetings (and minutes released 33 times) and 8 congressional testimonies. Removing the 164 days covered by these events (15% of the 1092 trading days since Sept 5 2011's gold peak), reduced gold's drop by almost half to just 25%.
As Santiago Capital's Brent Johnson warns "never underestimate the power of The Fed" but in the long-run this is unsustainable as while The Fed has consistently forecast, promised, guaranteed that economic green shoots are showing up, they have been horribly wrong… and with December's meeting looming, their credibility is running on fumes.
We have transitioned from free markets to centrally-planned and financially-engineered markets as the PhDs attempt to control the greatest monetary experiment ever undertaken. But they are almost out of runway… and they know it as mainstream market participants belief in their omniscience is rapidly fading.
Watch the full presentation below as Santiago Capital's Brent Johnson transitions from the manipulated markets to the loss of trust and faith that is coming – "god help us all" he ominously concludes as he notes it is not important where gold trades now but where the precvious metal will trade when you do need it…
- For The First Time Ever, Japan Enters A Quintuple-Dip Recession (Courtesy Of Abenomics)
Because nothing says ‘successful monetary policy’ like 5 ‘technical’ recessions in 5 years…
Japan 3Q GDP Falls Annualized 0.8% Q/q; Est. -0.2%
As if this was not bad enough, Japanese business spending dropped 1.3% QoQ – its worst drop since Q2 2014…
And finally – what is working…
Charts: Bloomberg
- Breadth, Buybacks, & The Piercing Of The "Grandaddy Of All Bubbles"
Submitted by Doug Noland via The Credit Bubble Bulletin,
The “Granddaddy of All Bubbles” thesis rests upon the view that the world is in the midst of the precarious grand finale of a multi-decade global Credit and financial Bubble. When a Bubble bursts, system reflation requires an even larger fresh new Bubble. This has repeatedly been the case going back at least to the “decade of greed” late-eighties Bubble in the U.S. These days the world confronts the terminal Bubble phase partially because of the unprecedented scope of the China and EM Bubbles. It’s simply difficult to imagine another more far-reaching Bubble.
Also critical to the finale Bubble thesis is that the “global government finance Bubble” – encompassing unprecedented excesses in sovereign debt, central bank Credit and government market manipulation – has engulfed the very foundation of contemporary “money” and Credit. It’s again quite a challenge to envisage a new financial Bubble inflation cycle following a crisis of confidence at the heart of global finance.
As I’ve posited repeatedly, the global Bubble has been pierced. There's more confirmation again this week. The collapse in commodities and EM currencies along with the faltering Chinese financial Bubble mark an historic inflection point. Global policymakers have gone to incredible measures to stabilize market, financial and economic backdrops. Yet reflationary measures will continue to only further destabilize.
When policy-induced “risk on” is overpowering global securities markets, fragilities remain well concealed (and my prognosis appears ridiculous). Fragilities, however, swiftly manifest with the reappearance of “risk off.” Rather quickly securities markets demonstrate their proclivity for illiquidity and so-called “flash crashes.” So after an unsettled week in global markets, the critical issue is whether “risk on” is giving way to “risk off” dynamics.
There is no doubt that a powerful “risk off” has again gripped commodities markets.
Crude (WTI) sank 8.5% this week to $40.71, the low since the tumultuous August period. The “GSCI” Commodities Index dropped 4.0% this week, increasing 2015 losses to almost 19% while trading down to near August lows. The Bloomberg Commodities Index sank to an almost 16-year low. Copper prices this week sank 3.6%, trading to a new six-year low. Zinc also traded to a six-year low, with nickel at a five-year low. Unleaded gasoline dropped almost 10%. Wheat fell 5.3% and Corn dropped 4.0%.
With commodities succumbing to another leg in an increasingly brutal bear market, worries quickly returned to EM. The Brazilian eal declined 2.1% this week and the Colombian peso sank 6.4%. The Russian ruble fell 3.5% and the South African rand declined 1.6%. Mexican stocks were hit 3.6%.
November 9 – Bloomberg (Taylor Hall): “Debt in developing markets is estimated to have reached $58.6 trillion at the start of 2015, with credit in China, Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea and Thailand exceeding that of Latin America, emerging Europe and the Middle East, according to the Institute of International Finance. Emerging-market debt has grown $28 trillion since 2009, according to the IIF… Global debt has soared $50 trillion during the period to surpass a total of $240 trillion, or 320% of gross domestic product, in early 2015. While credit has increased for almost all countries included in the new monitor over the past decade, debt-to-GDP ratios in developing Asia for non-financial corporate, household and financial corporate sectors have risen the most… Non-financial corporate sector debt in emerging markets has risen $13 trillion since 2009, increasing more than five-fold over the past decade to surpass $23.7 trillion in the first quarter of 2015. The advance has been most concentrated in emerging Asia, where it rose to 125% of GDP.”
And with market attention seemingly returning to the world’s precarious debt overhang, “developing” Asian equities were hit hard this week. Stocks were down 4.2% in Taiwan (TAIEX), 2.8% in Singapore (STI), 2.8% in Thailand (SET), 3.1% in the Philippines (SE IDX), 2.1% in Indonesia (Jakarta Comp) and 1.6% in Malaysia (KLCI). Australian stocks (ASX 200) were hit 3.1% and New Zealand stocks (NZX 20) fell 1.7%. Hong Kong’s Hang Seng Financial index dropped 2.6%, increasing its 2015 decline to 30.4%.
Disappointing Chinese economic data (imports, exports, producer inflation, etc.) already had investors on edge. A (rapidly?) deteriorating corporate Credit backdrop was beginning to cause angst. And then Thursday’s Chinese Credit data was stunningly disappointing. October saw total Credit growth (“Total Social Financing”) cut by more than half. After September’s jump to $204bn, Credit growth slowed sharply to $75bn, the weakest month of Credit expansion since July 2014. New bank loans, at $81bn, were less than half of September’s $165bn. This is insufficient Credit to hold bust at bay.
In short order, confidence that Chinese policymakers have everything under control has begun to wane. The view that Beijing can simply dictate Credit growth through mandates to the big state-directed lenders is being shaken by anecdotes of increasingly nervous bankers and cautious borrowers. Suddenly there’s talk of the Chinese “pushing on a string.”
When global markets are in a bullish mood, commodities and EM currencies appear to have bottomed. Yields on energy, commodities and deep cyclical company debt around the globe seem enticing. “Developing” country debt is attractively priced. Chinese officials seem capable of ensuring 6.5% growth as far as the eye can see. China enjoys the capacity to stabilize its currency, inflation level and debt load. And stable Chinese growth will backstop commodities markets, EM markets and economies and the global economy (and markets!) more generally.
But this optimistic view of things turns flimsy in a hurry. When crude and commodities begin to tank, large quantities of debt (company, country and financial) look increasingly suspect. King dollar takes off, putting added pressure on faltering commodities and EM (currencies, debt and stocks) Bubbles. And with the Chinese currency pegged to king dollar, the markets’ view of the China Credit situation can abruptly shift from “manageable” to “potentially very troubling.”
And returning to the “Granddaddy Bubble Finale” thesis, the Chinese and EM Bubbles fundamentally changed the “producer” and “consumer” inflationary backdrops. Ultra-loose global finance has ensured massive overcapacity in too many things. It has created an unprecedented divergence between bubbling financial markets and weakening fundamental prospects. There’s way too much debt almost everywhere, a debt burden that central bankers would like to inflate away to more manageable levels. The Chinese are desperate for inflation to grow out of historic amounts of debt. They’ve been able to inflate out of debt troubles previously, and they’ve watched U.S. reflationary measures work their magic repeatedly.
The bursting global Bubble is especially problematic for China. EM currencies have been devalued, while the U.S. and Chinese currencies have skyrocketed. The old reflationary measures no longer work. Loose “money” only exacerbates overcapacity, inequalities and financial Bubbles. The strong dollar further pressures global pricing, while adding to heightened Credit stress globally (certainly including EM dollar-denominated debt). Meanwhile, China’s currency peg to the dollar ensures the already vulnerable Chinese manufacturing complex becomes further uncompetitive. It ensures major problems related to the country’s enormous lending and investing boom in global resources. The resulting Credit stress only exacerbates disinflationary pricing pressures.
In 2014 and again in August, it appeared China was to commence meaningful currency devaluation. In both instances acute financial stress forced Chinese officials to immediately backtrack. Trying to recover from the August fiasco, the Chinese have focused on currency stability. And when markets are in that optimistic state of mind, Chinese policy appears sensible and sustainable. But when “risk off” begins to take hold, China’s mountains of overcapacity and debt appear completely at odds with a strong currency – with a peg to king dollar – in a disinflationary global environment.
It wasn’t only commodities and EM that succumbed to “risk off” this week. European stocks were down about 3%. U.S. stocks had a really rough week. The S&P500 declined 3.6%, with the broader market down even more. Selling was broad-based. Credit spreads also widened, most notably in high-yield. Junk bond funds saw flows reverse to sizable outflows. There were anecdotes of waning demand for leveraged loans, high-yield municipal debt and risky Credits more generally. Puerto Rico… Hedge fund performance… This is all consistent with heightened risk aversion and self-reinforcing pressure to de-leverage.
* * *
Which is especially cocnerning with breadth at near record lows…
Leaving US equity markets balanced precariously atop an ever-decreasing ponzi of ever-increasingly mega-cap firms… (Top 10 firms in the S&P 500 gained equivalent of the losses of the remaining 490 firms year to date)
Just what is The Fed to do now that the low-cost buyback bonanza is dying…
Just ask Macy's or Nordstrom this week…
* * *
Confidence was so high that the bulls had essentially already taken a big year-end rally to the bank. “Risk off” into December would catch the bullish consensus completely flatfooted. “Risk off” would also catch most market operators un-hedged and over-exposed on the long side. “Risk off” would also complicate life for the Fed. Just when they had finally gathered the nerve to move, global markets turn sour. And perhaps the Fed has been whipsawed by the markets one too many times. But I still think global markets are being dictated much more by China than the Fed. And at this point, Chinese officials have the much more difficult decisions. Do they bite the bullet and start devaluing? Or do they stick with the peg and hope?
My Friday writing has been interrupted by the news of terrible terrorist attacks in Paris. It’s a reminder of the increasingly hostile world in which we live. And it’s consistent with a darkening of the social mood in Europe, as well as here in the U.S. and around the world more generally. It’s also part of the troubling backdrop conducive to a problematic “risk off” when faith in global central bankers and Chinese officials wanes.
November 13 – Bloomberg (Candice Zachariahs, Anchalee Worrachate and Lananh Nguyen): “…While dislocations may provide opportunities for investors, they also bring challenges, according to… Luke Bartholomew, an investment manager at Aberdeen Asset Management… 'The real worry about liquidity is that it behaves like a bad friend — it is there when you don’t especially need it, but as soon as you do need it, it disappears.'"
- Dow Drops 140 Points, Bonds & Bullion Pop As Markets Open
As futures markets reopen, a flight to safety bid is evident with gold ($1090) and bonds bid as US equity futures extend Friday's losses (erasing half of the October surge gains). The Dollar is modestly bid against the euro (EURUSD 1.06 handle looms) and oil is holding slightly in the green (war premium)…
"Market uncertainty"
Leaving Dow Futures down 140 points from Friday's close…
And The S&P has erased half the October surge gains…
As EURUSD tests back down to a 1.06 handle…
- They're Coming For Your Cash
Submitted by Mark Nestmann via Nestmann.com,
It might sound like a conspiracy theory spun by right-wing crazies. But judging by the increasing desperation of governments to reboot the world economy, it just might happen.
“It” is the recall or confiscation of cash, i.e., dollars, euros, pounds, etc., in physical form. And a key justification that those calling for this radical measure cite is that it reinforces the ability of central banks to impose negative interest rates.
Negative rates mean that lenders literally pay businesses and consumers to borrow money. They also penalize savers for hoarding it. The Danish and Swiss national banks have gone the farthest into negative territory, with interest rates of -0.75%. That means €100,000 in a euro-denominated account in Switzerland would be worth only €99,250 after one year. While these rates apply only to “excess reserves” banks maintain at the central bank, nothing stops banks from requiring depositors to share the pain.
But that’s not enough, according to some economists. Citicorp’s chief economist, a technocrat named Willem Buiter, thinks the US needs much lower interest rates to push the economy out of the doldrums. He thinks negative interest rates around -6% would do the job. But there’s one condition: For his plan to work, he says, the government must abolish cash.
It’s easy to understand why Buiter might not have warm and fuzzy thoughts about cash. After all, if your bank is taking 6% from your savings, $100 in your account would be worth only $94 at the end of one year, $88.36 after two years, and $83.06 after three years. On the other hand, a $100 bill with Ben Franklin’s picture on it would still be worth… well, $100. Buiter understands that as long as cash exists, no one will voluntarily keep their savings in accounts with negative interest rates.
And Buiter isn’t the only one pointing out that outlawing cash could stimulate the economy, especially in a crisis. In a recent article, Michael Pento, president and founder of Pento Portfolio Strategies, observed:
“Strategies such as pushing interest rates into negative territory, outlawing cash, and sending electronic credits directly into private bank accounts may appear more palatable in the midst of market distress.” (emphasis added)
And the Fed seems to be catching on to the prospect of negative interest rates. At the latest meeting of the Fed’s Open Market Committee, at least one member suggested that negative interest rates might be worth considering.
As for abolishing cash altogether, proposals to do so are much further advanced outside the US. Italy and France have banned allcash transactions over €1,000. Spain has banned cash transactions exceeding €2,500. Similar restrictions are in place in Belgium, Bulgaria, Greece, Mexico, Russia, Uruguay, and other countries.
In the US, cash transaction limits don’t yet exist, but de facto limits already are enforced. I’ve received reports from several clients of interrogations by banks if they withdraw more than a few thousand dollars in cash from their accounts. And depositing or withdrawing more than $10,000 in cash from an account requires that banks (as well as other “financial institutions”) file a Currency Transaction Report with the IRS. “Structuring” a single cash transaction into multiple transactions to avoid this requirement is a crime. And if the circumstances surrounding a transaction above $5,000 are “suspicious,” financial institutions must file a Suspicious Activity Report.
Federal, state, and local law enforcement agencies consider cash holdings inherently suspicious. Under the Alice-in-Wonderland legal process of civil forfeiture, they can seize your cash if they believe that it’s somehow connected to a crime. That’s easy, since nearly 100% of cash circulating today contains tiny concentrations of narcotics residues – primarily cocaine. All police need to do is bring in a drug-sniffing dog to inspect the cash. If the dog alerts, police seize the cash. And under civil forfeiture rules, it’s up to you to prove that the cash has a legitimate origin.
If the government decides to restrict cash transactions or outlaw cash altogether, how would they do it? Actually, efforts along this line are already well under way. Many airlines accept only credit or debit cards for inflight purchases. Louisiana forbids cash for some secondhand sales of scrap metal. A proposal in Wisconsin would ban cash payments for treatment at pain clinics.
But for negative interest rates to really take hold, the Fed will need to step in. One proposal is for cash to be recalled in a very short period – as little as 10 days. Anyone turning in more than a relatively low threshold – perhaps as little as $1,000 – would be required to prove that the cash was generated legally and that all taxes on the income had been paid. Otherwise, 30% or more of the cash would be confiscated.
It’s easy to be frightened by these proposals. But if governments think they can force us to accept negative interest rates on our savings by abolishing cash, they need to think again. It’s preposterous to assume that savers will passively accept outright confiscation of their assets via negative interest rates or a ban on cash.
Instead, people will simply revert to other stores of value. The Yapese people who inhabit some of the Caroline Islands in the Pacific Ocean, for instance, once used giant stone disks as money. Some of the disks were as large as 13 feet in diameter.
Other forms of “currency” are more convenient. For instance, at the end of World War II, a cigarette economy developed in occupied Germany. Cash was scarce, so ordinary Germans adapted by exchanging cigarettes for food and other necessities.
Indeed, barter of all kinds flourishes when money is scarce. It will flourish even more if governments make a serious effort to abolish cash. And of course, ending cash will only encourage the growth of digital currencies such as Bitcoin.
Finally, I believe that there will be significant movements of cash into precious metals – especially gold. If you don’t already own some gold in fully allocated form, now would be a good time to consider buying some.
- The Fed Gave Wall Street The Lowest Rates In 5000 Years & All Main Street Got Was This
It's simple – in theory – a central planning body, who knows what is best for the rest of society, lowers interest rates (to reduce the cost of capital, encourage entrepreneurial actvities, and stimuluate the economy – and therefore jobs – for the average joes and josephines of the world).
So the 'smartest people in the room' cut interest rates, lowering the cost of capital to the lowest in 5000 years…
But a funny thing happens when the world is saturated in debt, leveraged to the max, and liquidified by lenders of last resort… the textbook breaks!
And the real economy "gets nothing"
But do not let that stop them trying it again.
Charts: BofAML
- How Many More Recession Confirmations Do You Need?
Submitted by Jim Quinn via The Burning Platform blog,
Despite the bogus BLS employment report last week (so the Fed could raise rates before the next financial crisis hits), all economic data confirms an economic recession. Corporate profits are falling, and their forecasts for next quarter are worse. Global trade is slowing dramatically.
Oil prices and other commodities are plummeting to multi-year lows. Manufacturing and Services surveys are flashing red.
China, Japan and European economies continue to suck wind. Layoff announcements by major corporations are up 40% over last year.
A global deflationary recession is underway. Only a CNBC bimbo, shill or Ivy League educated economist isn’t bright enough to see it.
Retail sales came out Friday morning and they were worse than dreadful. They confirmed the horrific quarterly reports from Macy’s, Nordstrom’s, and Kohl’s.
Total retail sales grew a minuscule 0.1% from September and only 1.7% versus last year. It’s even worse than it looks. When you back out the subprime auto loan spurred auto sales (long term rentals), retail sales grew only 0.5% over last year. That is far less than true inflation, so on a real basis retail sales are FALLING like a rock. This only happens during recessions. And it isn’t a one month thing. Retail sales, even including loan boosted auto sales, are flat over the last three months and up only 2.1% for the first 10 months of the year.
The decline in gasoline sales due to plunging prices has contributed to the lousy retail sales numbers, but the storyline of the economic bulls was how this was going to boost the spending of consumers across the board. That storyline is as dead as an Obamacare patient. It seems all the gasoline savings immediately went to pay for the soaring cost of Obamacare, even though the BLS says there is no healthcare inflation. There are a few areas that jump out at me and paint an even darker picture:
- Three of the strongest retail sales categories over the last year were auto sales, furniture sales, and building materials, with growth of 6.2%, 5.2%, and 4.3% respectively. The main reason these three areas have been relatively strong is because you don’t need cash, a minimal level of income, or even a job to make a purchase at these retailers. All you need is for the finance company employed by the retailer to approve you for a loan. The 7 year 0% auto loans go to those with decent credit. The subprime loans go to anyone that can fog a mirror. Every furniture retailer is offering 5 years with no interest payments for their Veterans Day sales. Lowes and Home Depot offer no interest for 12 or 24 months for any purchase over $500. It’s the Fed’s easy money 0% interest scheme that is producing this fake strength. The people “buying” those cars, sofas, and washing machines don’t have the money and when the bill comes due, the losses will be epic.
- The powers that be should really start worrying after seeing the auto sales crash, despite huge incentives being offered by the desperate car dealers, along with the easy credit. It seems they may have saturated the market by giving away brand new cars to anyone with a pulse. At least the Repo companies will be booming over the next few years and used car prices should crash.
- Another strong area has been restaurants and bars, with 5.5% year over year growth in October. This is significantly lower than the growth earlier in the year, but it is still decent. I believe this is the area that will be the last to crash. Older people are drowning their sorrows at bars. Young people, living with their parents, can’t afford houses, rent, or vehicles, but socializing with their friends using a credit card is still possible. Life has become so miserable for so many people, the only enjoyment they can find is going out to a restaurant or bar.
- The last strong area is internet retail, with a 7.1% growth over last year. Despite state governments doing their best to crush internet retailers by adding sales tax to most transactions, consumers are staying away from malls in droves. Who would possibly want to drive miles to a crowded decaying mall, venture into a Sears, Kmart, or JC Penneys and deal with the low IQ drone employees, find out what you wanted is out of stock, or pay more than you would on-line? Amazon and the rest of the on-line retail establishment will continue to destroy bricks and mortar retailers.
- Besides gas stations, only department stores and electronics stores have negative YTD sales after 10 months. The downward death spiral of Sears, Penney, Macys, Best Buy and many lesser retailers will not reverse. Their real estate is old, decrepit, and antiquated. After this Christmas season there will be announcements of hundreds of store closings, as ghost malls spook our suburban sprawl landscape.
Lastly, one final chart to show even the most brainless twit on CNBC that we are presently in a recession, despite the rhetoric and propaganda being spewed by the dying legacy media. Look closely at where retail sales peaked and began to fall. Quantitative easing stopped on October 29, 2014. Shockingly, retail sales began falling and haven’t stopped. The trillions of fiat printed since 2008 has solved nothing.
Doctor Bernanke and doctor Yellen injected a massive dose of adrenaline into a patient with cancer. The patient showed the appearance of recovery…
but the cancer has metastasized and spread through the entire system.
Competent doctors would have cut the cancer out by allowing bankrupt banks to liquidate and purging the system of cancerous debt. Instead they took steps to promote the proliferation and spread of the cancerous debt. Now the patient is terminal.
If it looks like a recession, walks like a recession and quacks like a recession, it’s a recession.
- Goldman Assesses EM's "Original Debt Sin," Finds Burnt Turkey
Over the course of what can only be described as a protracted EM FX bloodbath – catalyzed, of course, by slumping commodity prices, the yuan deval, and threat of a Fed hike – one topic that’s been brought up repeatedly is that emerging economies with a large amount of foreign currency debt could find themselves in a decisively tough spot.
After all, if you’re sitting on a pile of USD-denominated liabilities and the currency you print crashes against the dollar, well then, you’ve got a big problem on your hands. This time around, most analysts point to better developed markets for local currency debt, which has allowed governments to avoid the so called “original sin” of becoming overly reliant of FX debt for funding.
Now, as we go into December, the market should be probably be asking more questions about what the potential for a soaring dollar means for emerging market balance sheets. As Bloomberg’s Richard Breslow put it last week, “emerging markets are not panicking, despite the Fed talk. The fall in their currencies in the last year and improved fiscal conditions are perceived as allowing them to withstand a Fed hike. Maybe wishful thinking but there you have it.”
Yes maybe. On Sunday, Goldman is out with an interesting take on the “original sin” issue, noting that you have to look at the whole picture (i.e. NIIP) if you want to understand where EM balance sheets really stand. Here’s more:
EM FX has been under pressure in 2015. For example, both the ZAR and the TRY have depreciated by 22% against the Dollar year-to-date.
This is not all bad news…but from a sovereign balance sheet perspective (i.e., credit risk perspective), this development is a concern as many emerging economies have issued significant amounts of foreign currency denominated debt (the ‘original sin’) which rises in local currency terms when FX depreciates.
Many emerging economies issue debt in foreign currency (the ‘original sin’) to reduce interest rate payments or because the market will not fund them in their own currency. This makes the country’s debt dynamics vulnerable to sharp currency movements and, as a result, incentivizes the local central bank to hold FX reserves. Exhibit 3 illustrates the level of external debt across EMs, divided into FX and local currency.
The large amounts of FX denominated debt, combined with the sharp FX movements, are a dangerous cocktail from a credit perspective. For example, a 10% TRY depreciation against the dollar will lead to a 3.5pp of GDP rise in Turkey’s external debt level (10% x 35% of GDP), all else being equal. Therefore, at first glance, it is no surprise that EM sovereign credit sold off in sync with EM FX over the summer.
But one also needs to assess the impact on external assets (e.g., FX reserves) when evaluating the credit implications of the sharp FX re-pricing. The asset side of the emerging markets net international investment position (NIIP) is illustrated in Exhibit 4.
Exhibit 5 illustrates the net external FX position (i.e., external assets minus FX dominated debt), divided into a USD, EUR and ‘other’ component. Within the CEEMEA region, Romania and Turkey are most vulnerable to generic currency weakness, as their net FX position is negative (in sharp contrast to Russia and especially South Africa).
In the simplest possible terms: Turkey doesn’t have enough in the way of external assets that can appreciate in an unfavorable FX environment to offset the pain said environment will have on the country’s pile of FX debt.
Just how big of a problem is that for Ankara you ask? Here’s Goldman again:
So how have EM balance sheets been affected by the latest FX adjustment? Exhibit 6 illustrates the estimated change in the net international investment position following the EM FX adjustment in 2015 (for Russia since September 1, 2014). Turkey’s balance sheet (NIIP) has weakened by around 5pp of GDP following the large TRY adjustment, as the rise in the level of FX denominated debt dominated the rise in Turkey’s external assets.
So you can add “balance sheet problem” to Turkey’s laundry list of troubling issues and what the above means, in a nutshell, is that if the dollar continues to appreciate against the lira, this is going to get materially worse.
One important thing to note about this particular situation, is that Turkey has been reluctant to hike in order to arrest the lira’s decline. In fact, the central bank has on any number of occasions explicitly stated that it will follow the Fed. But when, back in August, Turkey attempted to release a “roadmap” of how its central bank intended to respond to policy normalization by DM central banks, the market wasn’t buying it, suggesting that if the Fed hikes, it may not be as simple as simpy saying “oh, ok, we’ll hike too.” That is, they may find themselves unable to catch up, portending still more lira weakness, exacerbating the problem outlined above.
And for anyone who thinks that a “strong” AKP government is going to give the lira anything that even approximates lasting relief, or that further ECB easing will give the central scope to remain on hold (or even to cut) in the face of a Fed hike, we suggest you take a hard look at exactly what’s going on politically and militarily both within Turkey and on its borders. There are huge (and likely intractable) idiosyncratic risk factors here that could send the currency plunging at any time. And then there is of course sheer autocratic incompetence (via Reuters):
Turkish President Tayyip Erdogan renewed his call for lower interest rates on Sunday, saying they were too high to encourage investment and entrepreneurship, an argument likely to unnerve investors already worried about central bank independence.
Long a champion of populist economics, Erdogan has repeatedly called for lower rates to spur growth, equating higher financing costs with treason.
Economists say Turkey’s central bank needs to hike rates to rein in inflation. Its refusal to do so has sparked worries about political interference in monetary policy, helping send the lira currency to a series of record lows this year.
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