• “I’M WITH PERV”

    22.11.2017 • United StatesComments Off on “I’M WITH PERV”

    Bill Bonner – Bill Bonner’s Diary (United States) –

    NEW YORK – “I’M WITH THE PERV,” screams today’s New York Post line. The accompanying photos show Donald J. Trump and the accused child molester Roy Moore.

    There are those who despise the Alabama Senate candidate. And there are those who see him as their hope for the future of the nation.

    We promise to annoy both camps.

    Media Feeding Frenzy

    In the current media feeding frenzy over the swinish and sometimes illegal behavior of public figures, Mr. Moore stands out.

    If you believe his accusers, he distinguishes himself by sexually targeting very young girls.

    “There ought to be a law that protects underage girls from full-grown male predators,” you say.

    And indeed, there is.

    If the charges could be proven, and were not blocked by a statute of limitations, Mr. Moore could do time for soliciting a minor, corrupting the morals of a minor, child molestation, or some such offense.

    Mr. Moore would know better than we; he has been on the public payroll practically all his life, enforcing some laws and breaking others.

    We don’t blame him; most of our laws are foolish or crooked, often both.

    We exceed the speed limit when we think we can get away with it… and we use the Census form for starting a fire in the kitchen. We’re tempted to take up smoking, too.

    But we aren’t running for public office, and we don’t provide a model for anyone but ourselves.

    Egregious Lapse

    The separation of church and state is one of the most important innovations in the U.S. Constitution.

    Mr. Moore gets in trouble because he seems unable to understand it… or at any rate, enforce it.

    This lapse is so egregious that Judge Moore was removed from the Alabama bench – twice.

    In other words, he was guilty of treason and misfeasance: failing to uphold its laws as he had sworn – on the Bible! – to do.

    Normally, faithlessness toward the feds would be no disgrace in our book.

    Sedition, subversion, mutiny, contempt – all are underrated. Far from disqualifying him from public office, they should be encouraged.

    As for his apparent looting of a tax-exempt charity… or even his alleged chasing after young girls in the Gadsden Mall 30 years ago – none of these things, unless proven, should bar him from the Senate.

    To the contrary, they will help him fit in…

    Bombastic Stupidity

    No completely honest man would want to run for the Senate; by this measure, Mr. Moore is more suited to the job than most.

    Plus, he seems to have more than his share of the quality that is held in the highest esteem by the electorate – bombastic stupidity.

    But such is the state of play in modern public life.

    A man can be a traitor to the Republic, a scoundrel, an ignoramus, a killer, a flaming jackass, a publicity-seeking humbug… with no poetry in his soul… no generosity in his heart… no grace in his actions… no sense of humor… and (the biggest failing) no humility…

    …but let him pinch the wrong bottom at the wrong time, and his career could be over.

    Would Mr. Moore make a good senator or a bad one?

    Who knows?

    What makes the man interesting to us is that he is prepared not only to betray the courts, the state of Alabama, and the U.S. Constitution… but also God Himself.

    Absurd Vanity

    “Take not the Lord thy God’s name in vain,” it reads on the 5,000-pound Ten Commandments monument Mr. Moore installed in the rotunda of the Alabama Supreme Court.

    Moore says he will bring “knowledge of God” to Washington… that he will “put God back in the public square.”

    What more absurd vanity is there?

    First, Mr. Moore has no more “knowledge” of God than anyone else – including the 535 current members of Congress. God is a mystery to us all.

    Second (talk about vanity!), does Roy Moore think he has God collared, like a cocker spaniel… and can put Him where he wants Him?

    If God wanted to be in Washington, D.C., He wouldn’t need Roy Moore or a ticket on the Acela Express. He goes where He wants.

    Third, what makes Roy Moore think that God would want anything to do with him or Washington?

    Swamp Law or God’s Law?

    We regard it as unlikely.

    The Gospels and the ure support us. Jesus was asked, directly, about going to Washington…

    And the Devil taking him up into a high mountain showed unto him all the kingdoms of the world in a moment of time…

    And the Devil said unto him, “All this power will I give thee, and the glory of them; for that is delivered unto me: and to whomsoever I will give it.

    “If thou wilt worship me, all shall be thine.”

    And Jesus answered and said unto him, “Get thee behind me, Satan.”

    Who offers political power in this Gospel passage?

    Not God. Not the voters. Not the Constitution or the law of the land. Instead, the Devil says clearly that Washington belongs to him.

    Christians know you have to make a choice. It’s either God or the Devil. Not both. Roy Moore has made his choice.

    And if voters put him in office, he will stand before God and Man, put his hand on the Bible and swear to uphold the laws of the swamp, not the laws of Moses or Jesus.

    And then, most likely, he will betray them all.

    Regards,

    -Read more at bonnerandpartners.com-

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  • Janet Yellen’s Kangaroo Exit Interview

    22.11.2017 • United KingdomComments Off on Janet Yellen’s Kangaroo Exit Interview

    Nick Hubble – Capital and Conflict (United Kingdom) –

    Do you remember the retirement of Alan Greenspan? Probably not, everyone seems to want to forget about what happened after 2006.

    The monetary maestro had presided over an extraordinary period of stability, calm and growth. They called it the Great Moderation. A president joked that if Greenspan died, they’d just prop him up in his chair at the Federal Reserve.

    Unfortunately, the 2000s turned out to be the opposite of moderation. It was the build-up of the greatest bubble since the 1920s. Bigger than the tech wreck, which Greenspan also presided over…

    The man asked to give Greenspan his sending off tribute at Jackson Hole in 2005 instead took to the lectern to tell the gathered central bankers the inconvenient truth. Danielle DiMartino Booth described how it went down in her book, Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America:

    Later that year, [Raghuram] Rajan was named chief economist for the IMF, the youngest person and first non-Westerner to hold that job. It was a great honor to be asked to praise Greenspan for making the world’s financial system more stable. On August 26, one presenter after another praised Greenspan for his approach to monetary policy, which a Fed summary described as “discretionary, flexible, and based on a deep understanding of economic data and business conditions.” Guided by eleven key principles, a “hallmark of the Greenspan era was reliance on what he himself has characterized as a ‘risk management’ approach to monetary policy. Under this approach, policymakers guard against low-probability outcomes that might have outsized adverse effects on the economy.”

    “The next day, Rajan stepped up to the lectern and delivered a very different paper from the one the Kansas City Fed organizers anticipated: “Has Financial Development Made the World Riskier?” His answer was an unequivocal yes. Rajan argued that technological innovation, deregulation, and institutional transformations had eroded the traditional banking virtues of stewardship and prudence. Investment banking on Greenspan’s watch had been profoundly transformed for the worse. Rajan used compensation for investment bankers and other finance executives to illustrate his point.

    […]

    “The interbank market could freeze up, and one could well have a full-blown financial crisis,” Rajan concluded. Banks would no longer trust each other. The result could be a catastrophic meltdown.

    “Rajan’s paper was received as a slap in the face to Greenspan, the Fed, and the economic theories championed by top American economists like [Larry] Summers, who was in the audience. It’s a good thing starchy academics would never resort to violence. But their disdain for Rajan was palpable. “I felt like an early Christian who had wandered into a convention of half-starved lions,” Rajan later wrote. Summers, then president of Harvard University, lambasted Rajan, saying he found the paper’s “basic, slightly Luddite premise” to be “largely misguided.”

    And you thought these conferences are boring

    After that misguided performance, Summers almost went on to be the Fed chair in 2013. Not surprising given his competitors’ equally complacent comments at the time.

    But Summers had to withdraw when women’s groups drew attention to his comments about statistics on women’s aptitude at science and maths. Barack Obama appointed Janet Yellen instead. No mentioned Summers’ criticisms of Rajan, which you’d think are more relevant.

    Anyway, that was Greenspan’s goodbye. His successor Ben Bernanke was lauded for saving the world when he retired from the Fed. Cleaning up Greenspan’s mess is more like it.

    The current chair, Yellen, has announced her own retirement. So the race is on for how she’ll be remembered. So far it resembles the cartoon Wacky Races: pretty much the same plot as every other episode, predictably messed up.

    From con artist to escape artist

    Unfortunately, Rajan has not been invited to opine on Yellen’s career publicly. They chose someone less critical to ponder over her years at the Fed. And I was misfortunate enough to catch part of the conversation on Bloomberg Radio over breakfast.

    So you’ll forgive me for my fits of sardonic laughter this morning. If Capital & Conflict had an audio version, it would’ve been a struggle to get through.

    I’m referring to the interview of Yellen by Lord Mervyn King. The outgoing chair of the Fed had to be interviewed by a fellow central banker equally responsible for the 2008 mess to ensure there would be no tough questions. The Baron of Lothbury was of the Bank of England before and during the 2008 crisis, and now features on “In Conversation with Mervyn King” as himself.

    In the interview, Yellen opined about how the minutes of the Fed’s meetings are made available eventually, so Fed leaders are ensured to be responsible. They don’t want to be ridiculed by posterity, who have the benefit of hindsight.

    How true, they don’t want to be ridiculed

    But she couldn’t be more wrong about their ability to judge what will be deemed responsible and what not. And she failed to mention the ridicule they’ve consistently been subjected to when the minutes have been released in the past.

    Some of the Fed minutes from the financial crisis exposed extraordinary complacency. Let alone public comments at the time about how sub-prime is a small problem and the refusal to even consider a drop in house prices on a national level.

    Funnily enough, Yellen in her interview with Lord King spoke about the amount of laughter in the minutes too. Analysis of the Greenspan and Bernanke years showed the amount of laughter hinted at the growing bubble and complacency surprisingly accurately. The correlation between stockmarket performance and laughing central bankers is high.

    Something is missing

    With commentators like Lord King jostling to give Yellen’s best man speech, something has gone missing. We know from the Greenspan debacle that it’s far too premature to judge her performance. Thanks to the nature of monetary policy, we won’t know for some years to come what her legacy should be.

    Then again, some of her early performances do suggest Yellen’s place in history be hilarious. Again, Booth puts it beautifully in her book:

    During her first public speech as Fair Chair, Yellen managed to botch both the substance and the “theater,” as Fisher would say. In very personal and impassioned remarks, Yellen mentioned three residents of Chicago struggling to find full-time jobs.

    Yellen neglected to mention that two of the three people she held up as examples had criminal records— one for felony theft and the other for heroin possession— deterrents in gainful employment with companies that did routine background checks. What was shocking: they had told Yellen about their pasts. She chose to leave out those salient facts in her speech.

    Every time Yellen has declared she is “data dependent” since, it’s made me giggle.

    But when it comes to monetary policy, we just won’t know Yellen’s place in history for some time. What beggars belief, then, is the declaration of Yellen’s extraordinary success by pundits. Everyone seems to be full of praise for the money printer. She comes across as wise, accomplished and having served society. It’s as if she cut out the trillions of dollar bills herself.

    Our analysis of her career is simple. Just wait and see.

    But we do know some things for certain. Money printing isn’t free, ironically. The costs are just hidden.

    There’s inflation that’s baked in, to emerge when you least want it to.

    There’s misallocation of capital – malinvestments driven by wacky monetary policy instead of sound economics. The build-up of “zombie” companies is a good example.

    And there’s the debt boom triggered by low interest rates. When those rates return to normal, that debt becomes unaffordable.

    Yellen has baked a horrific mess into our global economy and she’s exiting stage left before things hit the fan. From con artist to escape artist. Good luck to her.

    I just hope Robert Mugabe is around long enough to see it all fall apart.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

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  • Why Indoor Farming Is the Future

    22.11.2017 • United KingdomComments Off on Why Indoor Farming Is the Future

    Andrew Lockley – Exponential Investor (United Kingdom) –

    Yesterday we looked at indoor farming, where plants grow under electric light. It’s a strange and slightly shocking process – when we compare it to our 10,000 previous years of farming under the sun (and millions of years of hunting and gathering, before that).

    Our electricity is presently made largely from fossil fuels – so when we are consuming foods grown indoors, we’re actually eating frozen sunshine. But this energy mix is changing rapidly – and that’s going to have big implications for the nascent indoor farming industry.

    We now have a long history of reliably falling solar prices

    While breathless mainstream media lines might express surprise at these costs falls, Exponential Investor simply sees highly predictable trends. In fact, drops in the cost of solar are so reliable that there’s even a law to describe them: Swanson’s law.

    These costs reductions mean that, as we as we move into the middle of the 21st century, our energy system will likely shift inexorably towards mass solar power, as our primary energy source. Coupled with this, we’ll see a trend towards long-distance transmission of electricity. We’ll also benefit from inexpensive storage using technologies – such as power to fuels, and grid-scale stationary batteries. Instead of relying on “frozen sunshine” from millions of years ago, we will soon be able to catch sunbeams in deserts – moving them in time and space to the world’s indoor farms.

    Ultra-Cheap power

    What’s more, indoor farms are the perfect electricity consumers for tomorrow’s renewable power generators. Cinemas and offices need reliable electricity. By contrast, you can switch the lights off in a farm without difficulty. Ceding control of their grow lamps to power companies will mean that farms will be rewarded with ultra-cheap power. The end result is that we may soon be able to import very cheap solar electricity to farms. These will be hosted in warehouses, basements, etc – in and around all major cities.

    To fully understand the logic behind indoor farming, we need to look at energy in a bit more depth. In my local supermarket, I can buy sugar snap peas. The energy required for these to grow is almost certainly dwarfed by the energy taken to get them on to the shelf. That’s because, in common with so much of our high-value fresh food, these peas are flown into the UK from tropical developing countries. If you think indoor farming is a bit mad, think about it this way: it’s a lot less mad then flying salad around the world.

    White-Collar Farmers

    In our new, renewable-focused energy economy, indoor farms will have the ability to cut out these transport costs. They’ll localise around consumers – bringing just-in-time, local production to the modern food industry. This will be a significant advantage for a new generation of white-collar farmers – who will swap muddy fields for industrial indoor racks. As a result of this regularisation of the growing environment, these farmers will be able to mechanise in new ways – and farms of the future may increasingly come to resemble the highly automated car factories of today.

    Furthermore, it’s worth remembering that a lot of the energy used in food production isn’t for light – it’s for heat. Indoor farming has three huge advantages, in this regard. Firstly, the densely packed racking means that the building’s external surface area per crop plant is much reduced. Secondly, the absence of thermally leaky windows reduces heat transfer per unit area. Thirdly, the ability to be flexible on location means that farms can take advantage of low-grade waste heat. You won’t find many tech stories in the mainstream media about waste heat – but it’s a massive issue, and there are some really innovative companies working in the space. That’s why it’s a subject we’ve covered before.

    Remember: dull is good, dull makes money

    In conclusion, it will be many decades before we see the widespread use of indoor farming to grow low-cost bulk energy crops – such as potatoes, wheat, rice and sugar. These can be cheaply stored, and transported without spoilage. However, for high-value perishables, it’s a different story. We can’t yet grow trees in practical indoor farms, so forget peaches. But low-growing crops (eg, lettuce, cucumbers and strawberries) are well suited to this new form of agriculture. Once you throw some seriously cheap off-peak renewable energy into that mix, the business case only gets better.

    If you’re interested in backing indoor farming startups, you should check out some of the firms that have attracted recent investment from some deep-pocketed American venture capitalists (VCs). In particular, look at companies such as Plenty, Bowery and Infarm. These are pioneers in the first wave of a new type of farming – one which could end up providing a really significant part of the global food industry’s outputs, in coming decades.

    Is indoor farming the future? Let us know: andrew@southbankresearch.com.

    Best,

    Andrew Lockley
    Exponential Investor

    -Read more at www.exponentialinvestor.com-

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  • Huge Changes Coming in the World of Farming

    21.11.2017 • United KingdomComments Off on Huge Changes Coming in the World of Farming

    Andrew Lockley – Exponential Investor (United Kingdom) –

    For the entire history of the human race, we’ve been eating pretty much the same way. Plants capture sunlight – and we either eat them directly, or consume animals that feed on them.

    Of course, things have changed at various times. We’ve developed some clever stuff – such as farming, artificial fertilisers, and industrial food manufacture. But, when you strip it back to energy flows, the process has always been the same – since the very dawn of humanity.

    But now, we’re breaking the link between sun and food

    Indoor farming is now A Thing – and that typically means farming under artificial light. This approach has a precedent – although not one you might immediately think of. For many years, Britain has been partly dependent on indoor farming to grow its cannabis. Importing drugs by speedboat, Miami Vice , is risky (albeit glamorous). A practical alternative is renting a house, and bypassing the electricity meter to grow rooms full of dope. You don’t get to pose in a powerboat, but it’s a comparatively low-key criminal operation – helping to keep its perpetrators out of jail. Chuck in a couple cheap workers to mind the joint, and you’ve got yourself a very nice little earner – although not one that Exponential Investor officially recommends…

    Meanwhile, back in the world of food, things are changing rapidly. It’s not unusual to give plants a bit of a boost with some artificial light. For example, tomatoes are often helped along by grow lamps – previously high-pressure sodium, but now usually LEDs. Recently, however, we’ve seen an accelerating trend towards indoor farming with 100% artificial light. For example: Growing Underground is producing food in London’s disused tube tunnels. Similarly, a huge amount of venture capital money is starting to find its way into comparable US startups, such as Plenty. (We’ll reveal a few more, tomorrow.)

    For clarity, indoor farming consists of two interrelated concepts. The first is “vertical farming”. This basically means growing food on shelves and racks, often without soil (hydroponics). This idea has a century-old history, and was first scaled up at least as far back as the early 1950s. However, the really radical shift is not the move indoors, but the move away from using sunlight. That obviously necessitates “feeding” plants with artificial light. That’s the focus of our articles today, and tomorrow.

    What’s behind the move to indoor farming?

    Indoor farming has some distinct advantages. The environment is highly controlled – optimising growing conditions, and limiting the spread of diseases. Of course, you could do that with a greenhouse, but this doesn’t match indoor farming’s “secret weapon”: proximity. If you can grow salad in a disused tube tunnel, you can have it on a London plate mere minutes after picking – as opposed to days, in a conventional supply chain. The benefits in terms of freshness, flavour, and nutritional value are significant. Furthermore, there’s a huge reduction in transport costs and the consequential energy demands – and we’ll explore this in more depth tomorrow.

    Other economic changes are also significant. Various input costs are reduced, and yields are stabilised. To explain this, we’ll return to the issue of environmental control. The nature of indoor farming is that the growing environment makes plants much less vulnerable to being eaten by creepy-crawlies than is the case in an open field. You can generally make a reasonable effort to prevent infestation in the first place – and, if you are unlucky enough to have pests and diseases enter an indoor farm, you can use isolation and decontamination techniques to remove them. This means that the entire process lends itself very well to organic farming. I find the idea of organic farming that’s based entirely on artificial energy to be a rather bizarre concept – but that’s presently the way the rules work.

    So, is indoor farming just an insane environmental nightmare?

    Actually, using energy in this way might not be as bad as you think. Let’s look at the broader economic situation for indoor farming. We manage to waste around a third of our food, between the farm and our mouths. Anything we can do to reduce that is a blessing.

    We don’t typically find indoor farms being used to produce bulk energy crops. They can’t grow things like potatoes or apples. Instead, they’re used to creating a supply chain for fresh salads, and the like. These highly perishable foods are particularly prone to wastage. As such, they make a disproportionate contribution to food waste. Accordingly, improvements in the supply chain inherent to indoor farming mean that highly perishable crops have much lower risk of spoilage and waste, due to being grown indoors.

    Although the growing energy comes from fossil fuels, having a simpler supply chain really matters. Shorter haul distances, and a lower refrigeration requirement, have a non-negligible environmental benefit.

    From an economic point of view, better quality, a shorter supply chain, lower chemicals cost and more manageable farming processes all help keep costs down. But of course, energy is the elephant in the room – and we’ll return to that tomorrow, when we look in more depth at how indoor farming could change the world of food. Plus, we’ll be revealing some of the hottest firms in this space.

    What do you think? Please let us know your views – andrew@southbankresearch.com.

    Best,

    Andrew Lockley
    Exponential Investor 

    -Read more at www.exponentialinvestor.com-

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  • One Example of How a Good and Simple Tax Should Work

    21.11.2017 • IndiaComments Off on One Example of How a Good and Simple Tax Should Work

    Vivek Kaul – Vivek Kaul’s Diary (India) –

    Late last week I was paying the Goods and Services Tax (GST) I had collected on behalf of the government, to the government.

    In the process of payment, I made a mistake, which, with the benefit of hindsight I can say was a rather silly one. Basically, the entries for the state GST and integrated GST got interchanged. In the process, I ended up paying more integrated GST than I had to and less state GST than I had to.

    Integrated GST is a tax which the seller must collect from the buyer on the inter-state supply of goods and services. State GST and central GST are taxes which the seller must collect from the buyer on the intra-state supply of goods and services.

    Let’s understand this through an example. I am based out of Mumbai in the state of Maharashtra. I write a column for a magazine, which is based out of New Delhi. In this case, when I bill the magazine (the buyer), I will raise an invoice with an integrated GST of 18 per cent.

    If I write a column for a website (it could even be a magazine/newspaper) based out of Mumbai, then I will raise an invoice with a central GST of 9 per cent and a state GST of 9 per cent. The point to be noted here is that the overall rate of tax in both the cases (interstate and intrastate) is the same. Only the division is different.

    Anyway, getting back to my story. Given that I hadn’t paid the right amount of state GST, this meant that I had logon to the GST portal once again and pay the state GST I hadn’t. The integrated GST I had already paid will now get adjusted against the payments that I will make in the months to come. The money is safe. There is nothing to worry on that front.

    Of course, I didn’t realise I had made a mistake while paying the GST. It was only when my chartered accountant started filing the GST return, this mistake was noticed. After this, I frantically logged on to the GST portal in order to pay the state GST, I hadn’t. In fact, I almost ended up paying the integrated GST all over again. Thankfully, I noticed the mistake this time around.

    In the process of making this mistake I had a rather obvious realisation. As someone who is collecting GST on behalf of the government, it doesn’t matter to me whether I am collecting state GST or central GST or integrated GST. This is something that should work at the backend of the system that has been created to implement GST.

    How the GST collected by the government is split between the different governments (central and states) is not something I am really bothered about. Once I have upload my returns and have paid the right amount of GST, the system should be able to figure out, using GST numbers which have state codes and the PAN number of buyer as well as the seller built into it, what proportion of the GST should go to the central government and what proportion should go to the state governments.

    Given this, I as a user should simply be making an entry for the total GST that I need to pay. The GST system can then easily figure out, the various kinds of GST, given that each buying-selling transaction along with the value, is reported as well.

    But that is not how the current GST system works. The backend has become the front end as well. That is how the system has been designed.

    It is well worth asking why? Dear Reader, if you have ever filed an income tax return form on your own even once, you would already know the answer. When the government designs these forms, it does not keep the ease of use of the end user in mind. That’s the idea with which the government has always operated. This has seeped into the GST system as well.

    The success of any government system (or for that matter any system) also depends on how easy it is to use. This ease of use will make GST a good and simple tax, which it currently isn’t. In case of the GST, the government has just made the laws. The actual taxes need to be collected by the seller from the buyer. The seller then needs to hand the tax over to the government. The seller also needs to file returns. Currently, this entire process that has been made extremely cumbersome.

    I am no GST expert, but I am sure that if some thought was given to the entire process of filing GST returns and paying GST to the government, it could be simplified. But for that to happen, first and foremost what is needed is bureaucratic will, even more than political will.

    Indian bureaucrats have never liked to make things simple for the citizens of this country, because a simple system would discourage rent-seeking, which many of them excel in. And therefore, I feel that the GST will continue to be as complicated as ever.

    -Read more at www.equitymaster.com-

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  • Brits Offer Another €20 billion to the EU

    21.11.2017 • United KingdomComments Off on Brits Offer Another €20 billion to the EU

    Nick Hubble – Capital and Conflict (United Kingdom) –

    This morning’s lines are all the same. Prime Minister Theresa May held her cabinet together. Despite dissent, another €20 billion will be offered to the EU.

    Is it a bribe for Britain to be left alone? Is it tribute to our presidents in the EU? Maybe an independence fee? Does it buy a free-trade agreement? Is it meeting our financial obligations? Or is it charity?

    Quite frankly, this is the diplomatic opportunity of the century for Britain. Utter humiliation of Europe beckons. Imagine if Theresa May interrupted EastEnders with a national announcement and framed the payout in the following way:

    “My fellow Britons. This morning, the cabinet decided to approve a further $20 billion in aid to the EU. Today, I come to you with an explanation for this increase. It is, after all, your money.

    “Our efforts to support Europe financially for decades have failed. They continue to need our money each year to survive economically. But, in a referendum, Britain has decided to look to its own financial means. The government respects this decision.

    “However, Europe is on the cusp of failure. Already, divisions inside the EU are growing about the budget fallout from Britain’s departure. Like drug addicts, they seek our funds and break into panic if they are no longer forthcoming. Spain alone stands to lose more than €36 billion in EU funding.

    “Thus, political turmoil has struck from Greece to Germany. Economically minded separatist movements are growing in many regions of Europe, putting our own Brexit into perspective. Populism is on the rise, threatening the very existence of the euro in Italy and other nations. Euroscepticism of a dark kind is growing in the East. Government budgets are straining, despite years of British aid.

    “Given the failure of the European project, some want our money back. This is understandable given how it was spent. But to avoid being blamed for a serious crisis inside the EU, Britain must live up to its outstanding obligations – the promises we made in the past to help Europe in the future. This nation is not a saboteur of the EU project. It merely seeks to be a left a spectator rather than a victim.

    “The increased aid payment of $20 billion not only fulfils these obligations and promises, but proves our good faith to keep the EU project alive a little longer.

    “They will have no one to blame but themselves.”

    Can you imagine how the negotiations would go down after that speech?

    Unfortunately, Nigel Farage no longer gives the speeches the prime minister should have –check video below. So we won’t be hearing anything about foreign aid for the EU. At least not anytime soon. The way it’s ing, it’ll have to ask for some eventually.

    But back to our original question. What is the payment for? Does it buy us something?

    Perhaps it buys a decent trade deal. That’s the condition dissenters in the cabinet supposedly demanded for the €20 billion increase. “Money for nothing and ships for free” is the new negotiation position of David Davis.

    Most likely, Brexit isn’t really about the UK for the EU negotiators. It’s about all the other countries inside the EU, watching closely. But even there, the EU is stuck between a rock and a hard place.

    What if a net recipient of EU funding seeks to exit the union? Will the EU meet its financial obligations to that nation, just as Britain had to settle its bill?

    Who is worse? Westminster or Brussels?

    Back to Britain’s Brexit bill. You have to ask, is the payment good value for money? Buying off the bully boys of Brussels is only half of that equation. We’re still stuck with a bunch of politicians leading us, just in Westminster instead of Brussels.

    Some days that makes me terribly pessimistic. There are signs Brexit was the right move every day too though.

    For example, the EU decided where to move its banking and medical regulator by vote, not logic, common sense or economics. Three rounds of voting didn’t produce winners, so there was a drawing of lots. Paris and Amsterdam won over Milan and Dublin. This is how the EU makes decisions…

    “You could not make it up if you tried,” said one EU diplomat to the Financial Times. The far more sensible choice of Frankfurt was passed over, probably because the European Central Bank is already there. It’d be unfair to have both, or something like that. Meanwhile, Vienna’s offer of 25 years’ free rent and the best staff failed to sway votes, despite being the obviously economic choice.

    In a world where decisions are made based on political motives, it’s no wonder EU negotiator Michel Barnier thinks he can tell London that its financial sector is in trouble under Brexit. What the financial companies of Europe actually want is completely forgotten about in EU policy. Luckily, they can still raise funds overseas and investors can still keep funds overseas. Between the two, London will be just fine.

    If the EU makes its decisions based on their political criteria instead of economics, the whole pace is doomed. Brexit seems to have hardened its resolve to do so.

    But there’s something I’d like to know. Why didn’t the author of article 50 mention anything about how much it costs? How that would’ve changed things…

    Totally lost the financial plot

    The financial market calm of the last few months has been struck down by the last few days of trading. Stocks don’t just go up each day any more. It’s like waking up from a dream.

    It’s tough to point out what went wrong. Angela Merkel’s failure to form government is just one of a list of events that the media points to. Most are political in nature – the only source of market fragility when the market is ruled by central bankers.

    But don’t think the recent market wobbles represent some sort of return to normality or reality. It’s far from a reckoning. Utterly bizarre financial situations persist. Here’s one I honestly thought was close to impossible.

    According to this chart, the yield on European junk bonds is lower than on US ten-year Treasury debt. That means European companies likely to default on their debt are paying less interest than the US government.

    High risk in Europe offers less return than no risk in the US. The world has been turned upside down.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

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  • World’s Most Expensive Painting Is Bought by the Deep State

    21.11.2017 • United StatesComments Off on World’s Most Expensive Painting Is Bought by the Deep State

    Bill Bonner – Bill Bonner’s Diary (United States) –

    NEW YORK – Salvator Mundi, said to be by Leonardo da Vinci, is the world’s most expensive painting.

    Last Wednesday, at auction, each square inch was valued at nearly $1 million – including the bummed-up, restored, and damaged parts.

    The painting may not be da Vinci’s work. Or perhaps, since it has been so heavily doctored up, little remains of his work. And whoever’s work it was must have been having a bad day.

    And yet, it sold for over $450 million (including auction-house charges) – a lot of money for such a depressing work of art.

    Donald Trump as da Vinci’s Salvator Mundi

    The question on the table: Why?

    But since we don’t know the answer to that question, we’ll answer another one: How come so many people have so much money?

    Made in the Middle

    The latest GOP “tax reform” proposals raise questions, too.

    Though billed as a “middle-class tax cut,” the middle class gets almost nothing from the proposed plan.

    Instead, almost all the benefits go to: (1) business owners, and (2) the rich.

    And since the feds are unwilling to cut spending, the middle class ends up with about $2.2 trillion of extra debt, which it will have to reckon with eventually.

    We bring up the tax cut because we think it helps explain the painting. Not for nothing are Republicans and the modern Salvator Himself, Donald J. Trump, setting up the middle class for a huge bamboozle.

    Our train ride yesterday – the Acela Express from Baltimore to New York – was subsidized by taxpayers from all over the country.

    The train runs from one end of today’s modern economy to the other. It goes from Washington, D.C. – the center of politics – to New York – the center of money.

    In between is nothing but poverty and dereliction. There are factories that last made a product in the ’50s. There are workers’ houses almost unchanged in half a century. There are abandoned warehouses… wrecked cars… junk steel… and burly men in orange vests working with machines.

    The middle is where real work was done and real things were made, shipped, and distributed; it shows few signs of growth or prosperity.

    It is as though a sausage had been squeezed in the middle, driving the rich meat to the ends. In between is lean… and greasy.

    How come?

    Deep State’s Fingerprints

    Every crime scene has many fingerprints on it.

    Most are of the innocent.

    An aging population, for example, is not exactly something you can do anything about. Technological innovations, too, are largely beyond public policy control.

    But there’s one set of fingerprints on the tax cut flimflam… the relative poverty along the Northeast Corridor… and the $450 million painting: the Deep State’s.

    The insiders use fake money – the post-1971 dollar – to transfer wealth and power from the people who earn it to themselves. It is as though they loaded up the train in Newark and Trenton… and shipped everything to Washington.

    You earn real money by making real things and providing real services. But fake money is different. You don’t earn it by adding to the world’s wealth.

    You get it by subtracting from it… that is, by borrowing from future output.

    Real money is not controlled by anyone. It is earned – freely – in win-win exchanges. Back in the 1950s and 1960s, it ended up in places like East Baltimore and Trenton because they used to make things people wanted.

    But fake money takes a different route. It is created by the insiders… and controlled by them. It goes where they want it to go.

    No Stimulus

    Money always bows to politics; often, it is completely beholden to it.

    In Russia, the oligarchs took government-owned property and used it to build their fortunes. In China, state-owned enterprises and favored entrepreneurs get government-backed credit to build their apartments, factories, and shopping malls.

    And in America, the fake money is directed to favored sectors by 73,000 pages of the Internal Revenue Code… and 81,000 pages of the Federal Register.

    So, it is hardly a surprise that the latest tax proposals favor the Deep State at the expense of the middle class.

    Readers may argue that the money “stimulates” the economy… and that it “trickles down” to the common people. If so, there is little evidence of it.

    As a percentage of the working-age population, fewer people have jobs today than at any time since the 1970s. Back then, the typical man had to work 900 hours to earn enough to buy a new pickup truck. Today, he has to work 1,500 hours.

    Central banks have increased the world’s monetary base (and their own balance sheets) by $20 trillion so far this century.

    This money didn’t go to the fellow in the orange vest. Instead, it went to Russian tycoons… Chinese billionaires… art collectors… hedge fund managers… and rich people on both ends of the track.

    Regards,

    Bill

    -Read more at bonnerandpartners.com-

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  • India Lowered Sales Tax, Yet Nothing is Cheaper

    20.11.2017 • IndiaComments Off on India Lowered Sales Tax, Yet Nothing is Cheaper

    Vivek Kaul – Vivek Kaul’s Diary (India) –

    Dear Reader,

    If you are on WhatsApp, I am sure you would have got a forward by now, which basically shows that eating out at a restaurant hasn’t become cheap, after the Goods and Services Tax (GST) was cut to 5 per cent.

    In fact, there has been a lot of hungama (for the lack of a better word) around this issue, with people demanding that the government take action against the restaurants. Let’s try and understand this issue in detail.

    The GST on restaurant bills was recently cut to 5 per cent. Earlier it was 18 per cent or 12 per cent depending on whether the restaurant was air-conditioned or not. Hence, the expectation was that the cost of eating out will come down, with the rate of tax being slashed. Nevertheless, nothing of that sort has happened in many cases. Hence, people have taken to WhatsApp, Twitter and Facebook to highlight this issue.

    Before going further, it is important to understand that there is one basic difference between the new GST rate and the earlier GST rates of eating in a restaurant.

    The new rate is a flat tax of 5 per cent (and that makes me wonder as to why is it still called GST). This means that no input tax credit is allowed. In case of earlier rates, the tax was a value added tax i.e. input tax credit was allowed. This basically meant that restaurants could claim a set off for the goods and services tax they had paid on their inputs. The inputs in this could be tax paid on dairy products, meat, vegetables etc.

    But input tax credit is not allowed now. Hence, the new 5 per cent GST is not a value added tax. It’s just another tax.

    Now with the input tax credit not allowed, some restaurants are claiming that the cost of running their business has gone up. This has meant that the pre-GST price of the food products they sell, needs to go up, and in the process, there is not much of a difference in the end price that the consumer is paying for the food products.

    McDonald’s India says that with the input tax credit being withdrawn their operating costs have gone up by 10-12 percent. And after taking this increase in cost into account, the effective tax benefit due the lower tax rate of 5 per cent, “would have been less than a per cent.” As the Business Today magazine puts it: “A few restaurant owners… pegged a spike between 7 per cent and 10 per cent in costs.”

    The fact that input tax credit is no longer available, hence, there can’t be much of a difference in the final price paid by the consumer now, as against earlier, is a perfectly valid argument to offer, on parts of the restaurants.

    This hasn’t gone down well with many people and they have taken to the social media urging the government to take action. They are not convinced about the validity of the input tax credit argument. They feel that this is just an excuse on part of restaurants not to cut prices and increase their profitability. Hence, the government needs to investigate and take action.

    The trouble is that the capacity of the Indian government to do anything is fairly limited, let alone going around investigating so many restaurants. Also, it has other more important things to do. Given this, it is not in a position to check the books of accounts of the large number of restaurants. And more than that, it should not even try to entertain any thought of doing this.

    What I am saying is that if a restaurant chooses not to decrease price now, it can always offer this explanation of lack of availability of input tax credit, and there is no way to contest the explanation. The government cannot go into the accounts of each and every restaurant in the country in order to establish whether the explanation holds in their case or not. Of course, many restaurants obviously will look at this as an opportunity to make more money and which is precisely what they will do. There is no denying that.

    So, what is the solution to this? If you as a consumer feel a restaurant is expensive simply don’t go there. If enough people do that the restaurant will automatically have to cut prices. If people continue going, then the higher price doesn’t really matter to them and they shouldn’t be really complaining.

    Also, these are the unseen effects of starting with high tax rates. The trouble with bad economic policy (while GST is not bad policy per se, but its implementation clearly is) is that its ill effects are not always clear from the very beginning. This is now starting to come out in case of GST.

    -Read more at www.equitymaster.com-

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  • These Websites Force Your Computer to Mine Bitcoin

    20.11.2017 • United KingdomComments Off on These Websites Force Your Computer to Mine Bitcoin

    Andrew Lockley – Exponential Investor (United Kingdom) –

    Halloween may have been and gone – but the zombies are here to stay. I’m talking about a new trend for online publishers to take over your computer’s “brain”, and force it to mine bitcoin. So, while you’re innocently watching cat videos, your PC is powered up to the max – and making money for the website owner.

    Why has this come about? Simply put: ads don’t work. Publishers are increasingly struggling to make money. A combination of ad blockers and simple inattention grind down their income. Bitcoin mining offers a reliable alternative – but that’s not necessarily something that users are going to accept. After all, do you want your laptop fan screaming away, while publishers take your electricity to mine bitcoin? Maybe that cat video isn’t so important, after all…

    Just before I hand you over to today’s interview subject, I want to tell you how to get further information on bitcoin’s astonishing economic success story. If you’d like to bone up on bitcoin (and other cryptocurrencies), then you really need to download Sam Volkering’s book.

    Now, today I’m talking to Matvey Dyadkov, CEO of BitMedia.io, about the websites that force you to mine crypto.

    For transparency: Bitmedia.io is a client of mine, for work not typically related to press and PR. It has not paid me, or Exponential Investor, for this coverage – nor is it a condition of any other work, or contract.

    AL: Hi Matvey. What do you think of in-browser cryptocurrency mining? Is it a viable route to traffic monetisation, for publishers?

    MD: Firstly, I’d just like to point out that it’s not a new thing. However, it became widely known after recent news that Pirate Bay was using their visitors’ computers for mining bitcoin. Actually, I would not consider this as an alternative to online advertising – at least now.

    AL: Why not?

    MD: Earning money by means of advertising and mining are two completely different kinds of things. Absolutely different approaches should be used in these two cases. Advertising is designed to attract visitors’ interest, and to encourage them to purchase a product. In the case of mining, the goal is to use the maximum of computing capacity, for the longest span of time possible – and this means getting users to stay on site for a long time, even if they’re not doing anything. Mining creates a lot of problems for users – as their computer can become super-slow. This negatively impacts the reputation of the website.

    AL: What prevents publishers from using this approach more extensively?

    MD: Simple mathematics is the main barrier. Let us assume that you have a website with half a million user sessions a month. (We took Satoshi Hero as an example). If you select to publish online ads, you can earn about $1,000-1,500.

    Now let’s assume that an average session lasts eight minutes, and you want to mine Monero coins. This is a common approach, because it is deemed to be the best altcoin for in-browser mining. The capacity you may get from visitor in this case, is 25 hashes per second.

    As a result, you get 7 billion hashes per month or approx. $100 in accordance with the current Monero price.

    AL: But if it makes money, then why not use it?

    MD: Mining may make user experience even worse than digital ads – and that irritates everyone. Try to load 100% of your processor capacity and then surf the internet!

    AL: Can users switch this off, using something like an ad blocker?

    MD: Mining s can be blocked much more easily than can online ads. Nevertheless, cryptocurrency mining is becoming more popular on shadow economy websites (adult, gambling etc) – as it’s more difficult for them to find advertisers. Hence, the owners of such websites are less picky when it comes to ethics of traffic monetisation. For instance, such websites often advertise malicious software. Often, it seems that owners of these websites do not care much for their audience.

    AL: Are you planning to work with this kind of mining?

    MD: In BitMedia we closed this topic long ago. We came to the conclusion that in-browser mining is a bad idea – from both legal and ethical sides. Using visitors’ resources without their explicit permission may be not prohibited, but it is definitely not what website visitors would prefer. It uses their system resources, and makes their computer work slowly. Moreover, everyone forgets that competing with traditional miners requires a lot of resources. It is difficult to compare the capacity of a desktop computer with modern GPU-miners. Apart from that, one should bear in mind that the session duration is counted in minutes, whereas miners work for 24 hours a day – and each of them contains 6-12 video cards. Home computers really aren’t an efficient way to conduct a modern mining operation.

    AL: Will in-browser cryptocurrency mining become a widespread phenomenon?

    MD: I think that the kind of in-browser mining we see now will not develop at all. There’s no sense to compete with specialist mining machines, that are constantly getting cheaper and more efficient. Even though the publishers don’t pay anything for such kind of operations, they will need an enormous amount of traffic to make mining more profitable than publishing ads. I would not consider mining as a viable means of traffic monetisation for most websites.

    On the other hand, the technologies of micro payment and crypto monetisation are developing now. Our team is also working on a protocol for online advertising now. It is called AdLedger.io – and the project will implement our vision of monetisation, and digital advertising as a whole.

    AL: What kind of future can you imagine?

    MD: The fact that blockchain and decentralisation is our future goes without saying. Bitcoin was a pioneer of blockchain technology, and gave a push for the development of a huge industry. Realistically, however, it was only a start. Nevertheless, bitcoin solves one particular problem – the transfer of some amount of value, without the possibility of cancelling or faking the operation. Now blockchain is being used everywhere – and this hype-driven, indiscriminate use is quite stupid. Time will tell which of all these projects will actually prosper from blockchain technology – and go on to change our lives. As for online advertising, there are many problems that may be solved with the help of blockchain – and that’s where we’re focusing.


    Do you mind your PC being zombified, to support the websites you visit? Let us know: andrew@southbankresearch.com.

    PS don’t forget to download Sam’s crypto book.

    Best,

    Andrew Lockley
    Exponential Investor

    Related Articles:

     

    -Read more at www.exponentialinvestor.com-

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  • Why You Shouldn’t Count on the Republican Tax Bill

    20.11.2017 • United StatesComments Off on Why You Shouldn’t Count on the Republican Tax Bill

    Bill Bonner – Bill Bonner’s Diary (United States) –

    BALTIMORE – Have we been too cynical?

    Yesterday, the House passed its big tax-cut bill. The Dow popped up 187 points on the news. A reporter asked us later: “Will the Dow go to 40,000?”

    Assuming a tax bill comes through the Senate and out of committee in more or less the same shape, it will be a bonanza for your editor.

    We are one of the people who will benefit most (relatively speaking). Most of our income is “pass-through” money from an S corporation… and we need protection from estate taxes.

    Thank you, Donald Trump and Paul Ryan!

     

     

    Federal Parasites

    In addition to helping us, Republican sponsors say it will increase growth rates and jobs.

    Hmmm… How will it do that?

    Stimulus, of course. The bill will reduce federal tax revenues by $1.4 trillion over the next 10 years, says The Wall Street Journal. And the Tax Foundation says it will cut the feds’ income by $1.08 trillion. Meanwhile, the Penn Wharton Budget Model predicts that it will add $6.9 trillion to U.S. government debt by 2040.

    All of these cuts… and increased debt… are expected to stimulate the U.S. economy. Steve Mnuchin, formerly a Goldman insider in Manhattan, and more recently a movie producer, says these tax cuts will cause the economy to grow at a sustained 3% rate… and increase federal tax revenues by $2 trillion. Every comes out a.

    Do you believe that, dear reader?

    We hope not; it is nonsense.

    The feds are parasites; what counts is how much blood they suck. This new tax scheme doesn’t reduce government spending by one penny.

    Ultimately, the money they spend has to come from the productive economy; there’s nowhere else to get it.

    Here’s our simplified guide to tax reform:

    • The poor have no money.
    • The middle class has no lobbyists.
    • The rich have no desire to pay more.

    But why should giving the rich more money stimulate output? Are they having trouble making ends meet? Do they lack capital?

    According to a new report by Credit Suisse, the richest 1% of the world’s population already controls half of its total wealth. They have plenty of spending money; giving them more is not going to appreciably increase consumption. And if they need more money, they can borrow at the lowest rates in history.

    We’ve heard of no business in recent American history that failed… or failed to expand… because it lacked capital. On the other hand, thousands of businesses are failing because they lack customers.

    Which brings us to the rest of the population – the part that isn’t rich… and has no lobbyists… the part that must earn and consume to make an economy run.

     

     

    Return of Subprime

    U.S. household debt hit a record of $13 trillion last quarter.

    Here are some details from financial commentator Wolf Richter:

    • Mortgage debt surged 4.2% year-over-year, to $9.19 trillion, still shy of the all-time record of $10 trillion in 2008 before it all collapsed.
    • Student loans surged by 6.25% year-over-year to a record of $1.36 trillion.
    • Credit card debt surged 8% to $810 billion.
    • “Other” [debt] surged 5.4% to $390 billion.
    • And auto loans surged 6.1% to a record $1.21 trillion.

    All of these credit cards will come tumbling down in the next financial earthquake, but the $1.21 trillion auto-loan market seems particularly wobbly. Wolf continues:

    Of all auto loans outstanding, 2.4% were 90 days (“seriously”) delinquent, up from 2.3% in the prior quarter. But delinquencies are concentrated in the subprime segment and all hell is breaking loose there.

    [N]ot all subprime loans are cut from the same cloth. The 90 day delinquency rate for subprime auto loans originated by banks dropped after the Financial Crisis and has since remained fairly steady. In Q3, it was 4.4%, down from 7.1% at the peak of the Financial Crisis. So, the subprime auto-loan fiasco is not going to topple the banks.In contrast, the 90 day delinquency rate for loans originated by auto finance companies has been soaring since 2013. In Q3 2017, it hit 9.7%.

    This 9.7% is the highest delinquency rate since Q1 of 2010. And it first hit that rate on the way up during the Great Recession in Q3 2008, during the Lehman moment. A year later, it peaked at 10.9%.

     

     

    Reagan Redux?

    Will easing taxes on businesses and rich people help these subprime borrowers make their payments?

    Will it help students – who were lured into debt by the feds – pay their loans?

    Will it lighten the load from credit cards?

    Well, it could… if the feds’ “stimulus theory” was correct.

    Is it?

    You decide.

    Since 2009, the Fed has added $3.6 trillion of stimulus money into the economy by way of its QE programs and U.S. government debt doubled.

    It produced the weakest recovery ever… the worst jobless rate since the Great Depression… and an economy so limp and unappealing that even life expectancies are falling.

    Since 2000, central banks worldwide have added $20 trillion to the global economy… lowering interest rates to absurd levels… and boosting world debt to $225 trillion, approximately three times world GDP. World GDP growth rates have fallen.

    In 1981, President Reagan passed a tax-cut program far more ambitious and aggressive than the House Republicans’ version.

    Colleague David Stockman, who was Reagan’s budget director at the time, says it gave the economy 10 times more stimulus.

    What happened?

    There was a spurt of growth… then GDP growth rates trended lower for the next three decades. They are still falling.

    We doubt the present initiatives will do anything to stop that trend. Instead, they will speed it up.

    Regards,

    Bill

    -Read more at bonnerandpartners.com-

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  • The Coming Budget Rework Means Major Cutbacks for the EU

    20.11.2017 • United KingdomComments Off on The Coming Budget Rework Means Major Cutbacks for the EU

    Nick Hubble – Capital and Conflict (United Kingdom) –

    If you’re wondering what sway Jamaica has over Germany, you’ve missed one of the funniest coalition battles ever.

    Germany’s election almost a month ago left no clear majority. The rise of the Alternative für Deutschland party tipped the balance away from the major parties. But that’s not really the source of the damage.

    Chancellor Angela Merkel’s former coalition partner, the other mainstream party, disavowed forming a coalition with her. That’s the only other party with which Merkel would have a majority.

    And so Jamaica entered the picture. Thanks to the colour coordination of the various parties, Merkel faced a Jamaican government. Her black Christian Democratic Union (CDU), the Green party in green and the mildly libertarian Free Democratic Party (FDP) with yellow. Comedians had a field day.

    It must’ve been quite a sight to watch the negotiation too. The CDU and FDP have a history of coalition governments. But the CDU would’ve been battling to get the FDP to agree to the Greens’ terms. In the end, the FDP leader claims there was little agreement with the CDU either.

    At the midnight hour on Sunday, the talks failed. The FDP leader abandoned talks and explained why: “Better not to govern than to govern badly.” The FDP and the Greens just can’t stand each other. Merkel now faces reapproaching the SPD, trying out a minority government with the FDP, or calling a new election.

    This morning the euro fell 0.6% on the news, which is a big move in currency markets.

    Why do you care? Because the centre of Europe is not holding together when it needs to most. With more elections to come, and past elections causing a steady stream of trouble for the establishment, it’s important to take note that even the EU heartland of Germany is in a mess.

    The implications are a long list. It’s far from clear who Merkel’s successor would be if the whole drama costs her the top job, which is looking increasingly likely. Without Britain, the imbalance of power in the EU only worsens and the divide between France and Germany looks wider. Other mainstream parties around Europe will see what happened to Merkel and decide not to follow her path of compromise and globalism. They’ll shift right or left, creating divisions between them.

    Put all this together and EU policy becomes even more uncertain.

    Take Brexit policy, for example. The longer the negotiations go on, the weaker the EU becomes by splintering. On the one hand, that might make them more desperate. But, more likely, it pressures them into deals. As the EU loses its stability, a successful Brexit in defiance of the EU begins to look dangerously enticing for other nations.

    This is especially true given the coming budget reckoning…

     

    The coming budget reckoning

    Brexit will put European and EU budgets under pressure. In fact, an almighty storm is brewing in the heart of the EU. Britain’s exit could create a 16% drop in revenue. EU bureaucrats are working out where the cutbacks might come. And their drafts are causing a stir already.

    One option is to limit payments to countries unless their per capita income is below 90% of the EU average. That pretty much just leaves Greece and eastern Europe receiving funds. Ironically, those countries aren’t exactly pro-EU at the moment. The proposal has created panic in much of Spain, which stands to lose €37 billion.

    The problem here is that some countries face a very sudden drop in financial support. The more reliant you are on EU funds, the more you’re in trouble when there are broad based cutbacks.

    A rebalancing could mean countries go from net recipients of funds to net payees.

    The maths is easy to politicise. Spanish papers are pointing out they stand to lose disproportionately to other nations. That’s because their support goes from something to nothing, a 100% decline. Parts of Italy and Belgium face the same cliff edge. Meanwhile, Greece and eastern Europe might lose only a proportion of their support. It’s unfair!

    You can see how welfare maths is easy to manipulate. Losing disproportionately sounds unfair, even if the reason and calculation is sound. People feel entitled to welfare and transfer payments, making it extraordinarily difficult to wean them off, even when the welfare becomes inconsistent with its initial aims and justification.

    If only the Spaniards put the same amount of thought and analysis into private sector work as they do EU budget analysis. They’re as bad as companies who spend more on lobbying than R&D.

    There’s a heightened interest here because the funding lines of the EU expose the divisions inside nations, worsening the separatist surge in Europe. In Belgium, it’s the poorer French-speaking Walloons that are at risk of losing funding. In Italy the withdrawal of EU funds risk worsening the north-south divide which recently saw a pair of referendums.

    Until now, the EU’s money spigot had papered over these problems by making them international rather than national. The Belgians aren’t subsidising the Walloons, Europe is. But now that the money won’t be there, it’s the EU that’s worsening the divides of its member states. Not good for PR.

    Not that the transfer of funds between nations isn’t controversial too. Merkel’s fate in Germany comes back into the fray here. With Britain gone, the Germans and Dutch face becoming even bigger contributors. They’ve already made clear that’s not going to happen. If the EU pursues this, or implementing its own taxes, Europe will be irritating its paymasters.

    So, the question is where to cut. It’s going to be a squabble all round, among increasingly unpopular politicians. How long before they start to stand against the EU?

    Tax liberation days across Europe

    Within each European nation, budget battles are on the menu too. Institut économique Molinari calculates each nation’s “tax liberation day”. The idea is that the tax revenue of a country pays for only part of the year’s government expenditures.

    If you assume the tax dollars are spent first, then Europe’s government’s eventually reach a tax liberation day, where they have to borrow to spend. The earlier the day, the bigger the imbalance between spending and taxing.

    France, Spain and Romania already passed their tax liberation day these past weeks. Italy, Poland and many more are due before the end of November. The UK’s tax liberation day is the beginning of December, while Cyprus, Germany, Malta and Sweden have surpluses.

    The concept is a bit misleading, but it lays out the figures in a way people can understand. If they paid attention to the conclusions, there’d be a panic.

    The interesting part is that the French are not only the worst in Europe, but getting worse too. Most of Europe is improving. It’s the growing divides that will pose a problem. Countries not improving their position will be vilified. Again, the French and German conflict emerges.

    But it’s not just money that’s creating divisions. Eastern Europe is going rogue. The latest example is a tweet from one of your presidents, Donald Tusk. He accused the Polish government of implementing policy that amounted to a “Kremlin plan”. It’s ironic that Poland is turning from the EU while its former prime minister is one of the many presidents.

    The question is whether countries can hold it together until Brexit is decided on. The longer it takes, the better Britain’s chances of a good deal.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

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  • Tax Cuts for the Rich… Hallelujah!

    17.11.2017 • United StatesComments Off on Tax Cuts for the Rich… Hallelujah!

    Bill Bonner – Bill Bonner’s Diary (United States) –

    BALTIMORE – Have we been too cynical?

    Yesterday, the House passed its big tax-cut bill. The Dow popped up 187 points on the news. A reporter asked us later: “Will the Dow go to 40,000?”

    Assuming a tax bill comes through the Senate and out of committee in more or less the same shape, it will be a bonanza for your editor.

    We are one of the people who will benefit most (relatively speaking). Most of our income is “pass-through” money from an S corporation… and we need protection from estate taxes.

    Thank you, Donald Trump and Paul Ryan!

     

     

    Federal Parasites

    In addition to helping us, Republican sponsors say it will increase growth rates and jobs.

    Hmmm… How will it do that?

    Stimulus, of course. The bill will reduce federal tax revenues by $1.4 trillion over the next 10 years, says The Wall Street Journal. And the Tax Foundation says it will cut the feds’ income by $1.08 trillion. Meanwhile, the Penn Wharton Budget Model predicts that it will add $6.9 trillion to U.S. government debt by 2040.

    All of these cuts… and increased debt… are expected to stimulate the U.S. economy. Steve Mnuchin, formerly a Goldman insider in Manhattan, and more recently a movie producer, says these tax cuts will cause the economy to grow at a sustained 3% rate… and increase federal tax revenues by $2 trillion. Every comes out a.

    Do you believe that, dear reader?

    We hope not; it is nonsense.

    The feds are parasites; what counts is how much blood they suck. This new tax scheme doesn’t reduce government spending by one penny.

    Ultimately, the money they spend has to come from the productive economy; there’s nowhere else to get it.

    Here’s our simplified guide to tax reform:

    • The poor have no money.
    • The middle class has no lobbyists.
    • The rich have no desire to pay more.

    But why should giving the rich more money stimulate output? Are they having trouble making ends meet? Do they lack capital?

    According to a new report by Credit Suisse, the richest 1% of the world’s population already controls half of its total wealth. They have plenty of spending money; giving them more is not going to appreciably increase consumption. And if they need more money, they can borrow at the lowest rates in history.

    We’ve heard of no business in recent American history that failed… or failed to expand… because it lacked capital. On the other hand, thousands of businesses are failing because they lack customers.

    Which brings us to the rest of the population – the part that isn’t rich… and has no lobbyists… the part that must earn and consume to make an economy run.

     

     

    Return of Subprime

    U.S. household debt hit a record of $13 trillion last quarter.

    Here are some details from financial commentator Wolf Richter:

    • Mortgage debt surged 4.2% year-over-year, to $9.19 trillion, still shy of the all-time record of $10 trillion in 2008 before it all collapsed.
    • Student loans surged by 6.25% year-over-year to a record of $1.36 trillion.
    • Credit card debt surged 8% to $810 billion.
    • “Other” [debt] surged 5.4% to $390 billion.
    • And auto loans surged 6.1% to a record $1.21 trillion.

    All of these credit cards will come tumbling down in the next financial earthquake, but the $1.21 trillion auto-loan market seems particularly wobbly. Wolf continues:

    Of all auto loans outstanding, 2.4% were 90 days (“seriously”) delinquent, up from 2.3% in the prior quarter. But delinquencies are concentrated in the subprime segment and all hell is breaking loose there.

    [N]ot all subprime loans are cut from the same cloth. The 90 day delinquency rate for subprime auto loans originated by banks dropped after the Financial Crisis and has since remained fairly steady. In Q3, it was 4.4%, down from 7.1% at the peak of the Financial Crisis. So, the subprime auto-loan fiasco is not going to topple the banks.In contrast, the 90 day delinquency rate for loans originated by auto finance companies has been soaring since 2013. In Q3 2017, it hit 9.7%.

    This 9.7% is the highest delinquency rate since Q1 of 2010. And it first hit that rate on the way up during the Great Recession in Q3 2008, during the Lehman moment. A year later, it peaked at 10.9%.

     

     

    Reagan Redux?

    Will easing taxes on businesses and rich people help these subprime borrowers make their payments?

    Will it help students – who were lured into debt by the feds – pay their loans?

    Will it lighten the load from credit cards?

    Well, it could… if the feds’ “stimulus theory” was correct.

    Is it?

    You decide.

    Since 2009, the Fed has added $3.6 trillion of stimulus money into the economy by way of its QE programs and U.S. government debt doubled.

    It produced the weakest recovery ever… the worst jobless rate since the Great Depression… and an economy so limp and unappealing that even life expectancies are falling.

    Since 2000, central banks worldwide have added $20 trillion to the global economy… lowering interest rates to absurd levels… and boosting world debt to $225 trillion, approximately three times world GDP. World GDP growth rates have fallen.

    In 1981, President Reagan passed a tax-cut program far more ambitious and aggressive than the House Republicans’ version.

    Colleague David Stockman, who was Reagan’s budget director at the time, says it gave the economy 10 times more stimulus.

    What happened?

    There was a spurt of growth… then GDP growth rates trended lower for the next three decades. They are still falling.

    We doubt the present initiatives will do anything to stop that trend. Instead, they will speed it up.

    Regards,

    Bill

    -Read more at bonnerandpartners.com-

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  • How Apple Could Spark a Capitalist Revolution in N. Korea

    17.11.2017 • United KingdomComments Off on How Apple Could Spark a Capitalist Revolution in N. Korea

    Nick Hubble – Capital and Conflict (United Kingdom) –

    Six trillion dollars’ worth of rare earth metals sit untouched in Korea. It’s enough to break China’s stranglehold on the market.

    Plunging rare earth metal prices could trigger revolutions in battery technology. And make your consumer electronics vastly cheaper. Battery-powered cars, solar power, and many other technologies could suddenly become far more viable.

    The only problem is, the minerals are in North Korea.

    But don’t worry, I have a solution. Actually it’s Jocko Willink‏, a former US Navy SEAL turned author and journalist, who had the idea. He thinks we should bomb North Korea with prepaid iPhones.

    The idea is that North Koreans would prefer capitalism, if they only knew it existed. This is a typical American mindset that gets them into trouble in countries around the world. The idea that their own set of priorities are basic human nature is a bit presumptuous. But it’s true to some extent that people prefer to make choices about their lives. And only capitalism offers choice.

    Bombing North Korea with iPhones instead of bombs would encourage a revolution. Or defections would surge when Apple releases the newer model.

    One North Korean soldier recently ran for it, right across the Demilitarised Zone. Ironically, he got shot for his trouble, proving how demilitarised it really is. But he made it to South Korea alive.

    With iPhones in their pockets, North Koreans would discover the world they’re missing out on. Heartfelt YouTube messages from Rowan Atkinson at the end of Korean-subtitled Mr Bean segments could encourage revolution. Or renaming “The Wall” to “The DMZ” in Game of Thrones could make Koreans realise the nature of their captivity. Amazon alone could trigger upheaval by offering drone delivery of its products into North Korea.

    And you can pay in bitcoin, so Kim Jong-un won’t know a thing

    If the North Koreans managed to boot out their dictator, and opened their economy up, all those rare earths could be mined. Apple, Samsung, car companies and many more would be the prime beneficiaries. The war would pay for itself.

    Ivanka Trump could move her Chinese shoe factory to exploit North Korean workers instead. The Chinese know a bit about capitalism these days. They increasingly demand fair working conditions. Whereas the North Koreans are entirely used to working in awful conditions for pay that leaves them starving.

    A capitalist war with North Korea could prove consumerism defeats nationalism. Consumer sovereignty trumps national sovereignty. The last bastion of communism could be defeated by companies, nor corps. That’d be a victory to see.

    But it’s not just the Koreans causing trouble in geopolitics thanks to a lack of the free market. Just compare and contrast the US oil sector with Saudi Arabia’s mess.

    How not to go about an oil boom

    If you believe the International Energy Agency, US oil producers are poised for an almighty boom. It’ll be the biggest expansion ever seen by 2025. The US will be responsible for 80% of the increase in output globally. That’s a bigger increase and a bigger share than the Saudis and Russians ever managed.

    That’s how to pull off an oil boom. Now, here’s how not to…

    Saudi Arabia has gone from oil-producing megalith to the world’s largest family spat, plagued with bungles. The House of Saud is making Theresa May’s leadership struggles look boring.

    Figuring out what’s behind the latest mess is proving difficult. Is it about power, money or oil? The answer is all three, because they’re synonymous in Saudi Arabia. And that’s the problem. Mixing political power with corporate power and natural resources makes you look like African nations.

    The Saudis have had a terrible few months

    First, the plans to list the country’s major oil producer Saudi Aramco on a major stock exchange hit a list of snags. It started well, with global leaders encouraging the Saudis to choose their local stockmarket over competitors.

    The British government took the lead with its offer of a $2 billion loan guarantee for the company, as well as meeting officials to consider changing the listing rules for the behemoth company. The resulting controversy caused a PR shemozzle as the UK was accused of favouritism and bending rules.

    All this drama, even though only 5% of the Aramco shares will be listed.

    There was controversy over the published oil storage data

    The satellite image company Orbital Insight claims that the shadows of the Saudi above-ground storage tanks suggest the amount of oil stored has in fact increased while the government published figures of a significant decrease. If the oil storage figures aren’t reliable, what else is hidden?

    By far the biggest drama has been the ascension of Crown Prince Mohammad bin Salman. The Saudi king is set to abdicate soon. The crown prince decided to make his bid for power beforehand.

    A long list of Saudi family members and prominent businessmen find themselves arrested and thrown into jail. The jail being the Ritz Carlton in Riyadh. They had to throw out a bunch of tourists to make room for all the entourages. A few of them called Australian radio stations to complain.

    At first it seemed like the crown prince was reverting back to the old way of settling political disputes.

    You arrest your competitors

    Or perhaps being stuck in one of the most luxurious hotels in the world is the new version of the ancient practice of fratricide. Under the Ottoman “law of fratricide”, devised by Sultan Mehmed II 600 years ago, succession was decided by a policy of last man standing. Whichever brother killed off their brothers and cousins would be sultan. The idea was to ensure a lack of ongoing infighting. Sultan Mehmed III killed 19 of his siblings to take power, for example.

    But, according to him, Prince Mohammed is just on a corruption purge. And he’s probably entirely correct about the corruption part.

    But it’s not that simple. In the last few days, Prince Mohammed has shown his cards. His corruption crackdown is actually a ransom gig. The Financial Times reports how it works:

    Saudi authorities are negotiating settlements with princes and businessmen held over allegations of corruption, offering deals for the detainees to pay for their freedom, say people briefed on the discussions.

    In some cases the government is seeking to appropriate as much as 70 per cent of suspects’ wealth, two of the people said, in a bid to channel hundreds of billions of dollars into depleted state coffers.

    The Saudi government is short on money

    So it arrested rich people and demanded some of theirs.

    Don’t try this with your own family at home.

    Believe it or not, the whole drama is actually a popular one in Saudi Arabia. The wider population has watched leading Saudis and businessmen rake in cash from corruption. Prince Mohammed is just demanding they pay back their ill-gotten gains.

    But it’s the Saudi government who will get the money. If the hostages pay up. And the Saudi government is Prince Mohammed. So it’s hardly a gain for the man on the street.

    The funniest part in all this is that those who didn’t get arrested and detained find themselves at the mercy of those stuck inside the Ritz. They’re scrambling to secure their own wealth in the fear it’ll be signed away as part of the hostage negotiation.

    The price of oil has been on the rise as the drama wears on. Could it be the trigger for inflation that we fear? Saudi family relations are one of the few things central bankers don’t control.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

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  • Europe Uses “Economic Steroids” to Get Ahead of the US

    17.11.2017 • AustraliaComments Off on Europe Uses “Economic Steroids” to Get Ahead of the US

    Vern Gowdie – Markets and Money (Australia) –

    One of my favourite coffee shops on the Gold Coast is located near a gym.

    I watch in wonder at some of the unnatural specimens that file in and out of the gym’s front door.

    With thighs the size of tree trunks, walking without chafing is nigh on impossible. Their arms are bigger than the average person’s leg. Pectoral muscles strain against the barely-there singlets. The torso is so large that their arms are permanently suspended in mid-air.

    I could be wrong, but I think these people are quite literally ‘gym junkies’.

    It’s inconceivable that their Hulk-like appearance is a product of steak and eggs washed down with a few protein shakes.

    My educated guess is steroid use and abuse has been the major contributor in producing these ‘two tonnes of dynamite with a half-inch wick’.

    In their eyes, these bodies, bordering on the grotesque, are obviously a thing of beauty and pride.

    However, that steroid-induced bulk doesn’t come without cost.

    From The Sydney Morning Herald:

    ‘Male image pressure: Steroid health crisis looms, expert warns’

    According to the article:

    Alarming scientific evidence is beginning to link long-term anabolic steroid use to major health harms including heart attack, says visiting United States expert Professor Harrison Pope at Harvard Medical School.

    “For more than 10 years now we have been worrying that we will soon start seeing the impact of long-term anabolic steroid use, and now it is beginning to happen,” Professor Pope said.

    [a] study has shown that many men experience protracted severe hypogonadism, where testosterone levels plummet and the testes shrink. This can result in a drop in libido and erectile dysfunction.

    Professor Pope said there is also new evidence linking high levels of testosterone and other anabolic-androgenic steroids (AAS) to premature death of brain cells.

    For the record, I’m hoping it’s the death of brain cells that saves me from meeting my maker anytime soon.

    It seems like the bigger the , the smaller the ‘jewels’. Gotta love the symmetry of that equation.

    If this wasn’t bad enough, the sustained use of steroids increases the risk of heart attack and takes the ‘peck’ out of their ‘pecker’.

    However, this is a wealth — not health — newsletter. So, what does long-term anabolic steroid abuse have to do with your money?

    The Sydney Morning Herald article reminded me of The Gowdie Letter published on 26 November 2015, in which I wrote:

    …while fully aware of the wealth hazards of a system accumulating too much debt, we have policymakers doing everything in their power to keep us liquored up.

    The so-called adults in the room are really pushers wanting to keep us all hooked on their drug of choice — debt.

    When debt is injected into the system, the economy puffs up and looks strong — like a steroidal, singlet wearing gym junkie (with of course the obligatory tattoos and cap worn backwards).

    But the economy is not really that big and strong. In spite of the external appearance, internally the excessive use of debt actually weakens the system — much like too many steroids can shrink the pecker, create violent mood swings and damage vital organs.

    When you are aware of this fact do you blithely ignore it and keep plying the kids with booze and drugs OR based on previous experiences, do you act responsibly and warn about the perils of this activity?

    Debt will eventually kill the system. How much debt does it take for that to happen?

    It’s been two years since that article was written and we’re still none the wiser on how much debt the economic can absorb before it, too, suffers a heart attack. Courtesy of central bank laboratories, every major economy in the world is ‘on the juice’.

    Some more than others.

    Yet economic commentators fail to connect the outward appearance of an economy with what’s being injected into it.

    Reuters, 14 November 2017:

    The euro zone’s annual economic growth rate outstripped that of the United States in the third quarter setting up 2017 as the best year for the currency area since financial markets crashed a decade ago.

    How did Europe manage to out-flex the US?

    With natural growth?

    Heck no.

    The European Central Bank kept pumping the economic steroids — negative interest rates and money printing — for longer than the US. It’s that simple.

    Fed Balance Sheet 16-11-2017

    Source: Bloomberg
    [Click to enlarge]

    Europe may well puff out its chest, but all it’s done is fabricate a Lance Armstrong-type victory.

    The financial repression in the EU has gotten so bad that the AFR reported recently:

    it’s a worry when investors in the junk bond market start to think it’s safer to lend money to a bunch of European companies, that don’t have a decent credit rating, than it is to lend to the US government.

    What was that about sustained use of steroids killing off brain cells?

    What person in their right mind would lend money to a European company (of dubious credit quality) for the same interest rate offered by the US government?

    This is lunacy.

    On the local front…

    The RBA is getting worried that the average Aussie household is losing its consumption ‘libido’.

    RBA Governor Philip Lowe flagged this concern last week when announcing interest rates would remain on hold: ‘One continuing source of uncertainty is the outlook for household consumption… Household incomes are growing slowly and debt levels are high.

    Australian households have been ‘on the juice’ for more than 25 years. To overseas admirers, our economic is something to behold…the longest recession-free run in history.

    But, internally, we’ve done a lot of damage.

    Levels of mortgage stress are on the rise. Our state and federal governments cannot control their spending. The balance sheets of banks are overloaded with residential property loans…making the banks highly vulnerable to any property market downturn.

    Meanwhile, retail spending continues to soften.

    Australia’s economic is showing the classic signs of debt addiction. Chronic fatigue is setting in. The potential for organ failure is increasing.

    The global economy’s absolute dependency on central bank stimulants for growth has created the illusion of strength. But, in reality, it’s weakened the system to the point where our financial wellbeing is highly vulnerable to even the slightest of economic ills.

    The difference between the medical and economic professions could not be more different. The medical doctors warn us of the perils of drug abuse. Yet the economic doctors tell us that you can’t have too much of a good thing…the more the better.

    One of them is wrong.

    Provided you haven’t prematurely killed off too many brain cells, you’ll be able to figure out which one is telling the truth.

    Regards,

    Vern Gowdie,
    Editor, The Gowdie Letter

    Vern Gowdie

    Vern Gowdie

    Editor at Markets & Money

    Vern Gowdie has been involved in financial planning in Australia since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

    His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

    He is a feature editor to Markets and Money and is Founder and Chairman of the Gowdie Family Wealth and the Gowdie Letter advisory services.

    Vern Gowdie

    Latest posts by Vern Gowdie (see all)

    -Read more at www.marketsandmoney.com.au-

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  • In 13 Years, Robots Will Own Half of All Existing Jobs

    16.11.2017 • United StatesComments Off on In 13 Years, Robots Will Own Half of All Existing Jobs

    Bill Bonner – Bill Bonner’s Diary (United States) –

    BALTIMORE – How about those techs!

    As Chris Lowe reported in yesterday’s Market Insight column, the eight most valuable tech companies in the world – Facebook, Apple, Amazon, Netflix, Google parent Alphabet, Baidu, Alibaba, and Tencent – have added $1.7 trillion in market value this year.

    That’s more than Canada’s entire economy. And it exceeds the worth of Germany’s biggest 30 companies put together.

     

     

    Rise of the Machines

    There are two major reactions to the future: Some people are excited… and some are alarmed.

    Oil production began to recover last year. But the number of oil-rig workers did not.

    Why?

    New technology automated much of the work. Now, it takes only five roughnecks to do the work that 20 did just a couple of years ago.

    Oil-rig workers were well paid. That’s why rig owners are so eager to replace them. The machines don’t sue you when they break their legs. They don’t smoke on the job. And they don’t spend Saturday and Sunday with their families.

    But since the machines are taking the place of high-wage jobs, that leaves the formerly well-paid workers with nowhere to go but down market.

    That helps explain, too, why the only real growth in the job market has occurred in the service sectors – where bartenders and car parkers earn low wages in low-skilled jobs. Humans are forced to take the jobs the robots don’t want.

    And the number of robots in the workforce is expected to quadruple by 2025. By 2030, one estimate – widely circulated – is that half of all existing jobs will have disappeared.

     

     

    Human Pets

    Then, smarter than we are, the robots will help us in every aspect of our lives.

    They’ll tell us when to brush our teeth and whom to vote for. They’ll correct our grammar, diagnose problems with our cars… and suggest remedies for itchy skin, too. They will take out the trash, make stew out of tree moss… and unlock the gates of paradise.

    Nobel Prize-winning economist Daniel Kahneman was asked recently at the Council of Foreign Relations: What’s a? Will millions of people become “superfluous,” as Yuval Harari suggests, with nothing to do? Will these super-smart computers keep them as pets?

    Big “social changes” are coming, says Kahneman:

    This could be happening within the next few decades, and it’s going to change the world to, you know, an extent that we can’t imagine.

    And you don’t need singularity [a state of virtually instantaneous progress driven by intelligent machines] for that. You need a set of advances that are localized. And we can see those happening… self-driving cars, you know, that’s just one example.

    Blowing a Fuse

    Here at the Diary, we’re neither worried nor wonderstruck.

    First, all humans are superfluous. Always have been. We make work for ourselves; it isn’t given to us by the economy or the government.

    Second, we suspect the promise of artificial intelligence is largely nonsense.

    Machines can learn to do simple tasks, such as driving a truck. Yes, and you can get one to vacuum your carpet – big deal. And yes, they will be able to write dumb articles for lazy journalists… make smart calculations for engineers… and eliminate the need for most doctors.

    But so what?

    In the 19th century, machines took over the routine work. People fretted and whined when the automobile put the manure handlers out of work.

    But the more machines were able to do, the more people wanted things that were “handmade.” The more they made physical work unnecessary, the more people wanted personal trainers. And now, the more robots do, the more humans will want what they can’t do.

    In a world full of self-driving cars, we will be tortured to madness by the dream of taking control of the steering wheel ourselves.

    And when we all have robot valets, who make sure our ties are always at ease with our jackets, we will find some combination of colors so vile and shocking that the machines will blow their fuses and refuse to work for us.

    The world today does not lack computing power. Neither natural nor artificial. There are plenty of smart people around. More PhDs… more patents… more think tanks – more brain cells than ever before are applied to the pressing challenges of our day.

    And more computers, too, working at processing speeds that would have knocked our socks off just 10 years ago.

    The Apollo space program used a computer with the processing power of a single Nintendo NES game console from 1985.

    The iPhone 6 (released in 2014; we’re now on the iPhone 8) has the same processing power as a Cray supercomputer from the 1980s.

    And the total computing power available to mankind is now about a quadrillion times more than it was when Neil Armstrong walked on the moon.

    And so what? Are we happier? Are we richer? Is the world a better place? And if such a huge increase in computing power has failed to improve our lives, what can we expect from more?

     

     

    Too Much Intelligence

    Our phones give us the time to within a tenth of a second, but people are still late.

    Our computers correct our misspellings and verb tenses, but half of what we read is still senseless or trivial.

    The fancy new New Holland tractor we bought for the ranch just a year ago broke down for no apparent reason, while our old Ford from 1972 is still going strong.

    Is the music better than The Beach Boys in 1965 or Chopin’s Nocturne No. 8 from 1837?

    Are the cops more level-ed than they were on The Andy Griffith Show?

    Are the judges wiser… the girls prettier… or the politicians more honest than when Ike was in the White House?

    The problem today… as it always has been… is not that we have too little intelligence. In fact, with so much additional computing brain power coming online… we may have too much. Our hearts can’t keep up.

    Still, our advice is to relax. Let the robots take over. Be gracious. And dignified. Let them vacuum the carpet.

    And kick them down the stairs when they aren’t looking.

    Regards,

    Bill

    -Read more at bonnerandpartners.com-

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  • Get Ready for a Global Cash Crunch

    16.11.2017 • United KingdomComments Off on Get Ready for a Global Cash Crunch

    Nick Hubble – Capital and Conflict (United Kingdom) –

    You’ve read about the War on Cash here in Capital & Conflict for years now. Not to mention in Tim Price’s book of the same name, which you should have a copy of by now. It explains “How to survive financial martial law”.

    The idea has sprouted all sorts of variations and books around the world. Today I give you my own version of the phenomenon. In typical fashion for me, it’s precisely the opposite of everyone else’s view.

    I think the world is in for a War for Cash, not a War on Cash. We’ll see a cash grab, not the abolition of paper money. It’ll be a mad rush for cold hard currency – the physical kind.

     

    In the age of digitalisation, electronic payments using only someone’s phone number, and cryptocurrencies, this sounds a little odd. The thing is, we live in a real, tangible world. For now, anyway. And that means there’s a gap between your life and the digital payments system. One that can widen into a chasm without any warning. Except the one you’re reading now.

    Many years ago, I moved to the city of Melbourne in Australia for my first real job. (Flying trapeze gigs are more of a hobby.) To secure a flat, I had to come up with a bank cheque to pay the deposit. But my bank refused to give me one because my bank account was with its stockbroker division. The stockbroker account had all the benefits of a bank account for free and with higher interest. All the benefits except allowing bank cheques, that is.

    If it hadn’t been for a large wad of cash from an unexpected source, whom you all happen to know but shall remain unnamed, I would’ve missed out on the flat. Cash saved me when the digital banking system failed me.

    Then came the great Australian bank failures. You probably haven’t heard of them before. One after the other over a course of months, Australian banks had tech glitches that led to their ATM cash machines going down. People couldn’t get money for a few hours each time. It caused quite a mess, especially for elderly people without updated payment cards.

    This happened in a country that’s very advanced when it comes to digital banking. And that was precisely the problem. An overreliance on digital payment systems working.

    Speaking of which, in India, the turmoil caused by going cashless was all over the newspapers. Vox summarised the mess:

    One study, from the All India Manufacturers’ Organization, found that micro and small-scale industries showed a whopping 35 percent job loss and a 50 percent decline in revenue in just the first 34 days since the policy went into effect, and that those numbers are likely to continue to increase in coming months. Earlier this month, the International Monetary Fund said that Modi’s policy had caused India to lose its title as the world’s fastest-growing economy, after shaving a percentage point off its projection for India’s growth in 2016. Many of India’s small businesses that handle all their transactions in cash have facing crippling blows to their business.

    The New York Times looked into the personal effect this had on lives:

    Many of them, even children, are forced to go without fruit, vegetables and milk — now unaffordable luxuries. Most had not paid apartment rents and their children’s school fees in the months since the cash ban. Many had sent their families back to their villages, and were ready to give up and follow if things did not turn around soon. Sending cash to the elderly parents they had long supported is now out of the question.

    But it’s not just India that experienced cash-related turmoil en masse. Reuters reported on how the Federal Reserve shipped huge amounts of cash from its New York depot to Puerto Rico after Hurricane Maria. The banking system there was completely down. Bloomberg claims the Fed even sent a planeload with an “undisclosed amount”.

    Tourists were particularly unprepared for the cash crunch, explained Reuters:

    “I‘m out of options,” said Brandon Alexander Jones, a vacationer from London who on Tuesday was down to $85, with no way to get more cash, and no way to reach a friend on the island due to crippled cellular service.”

    Imagine if the hurricane had happened in a city where people hold barely any money in cash. Many young people don’t carry a wallet anymore. Just a bank card in their phone case.

    Then there was the Greek bank holiday and the empty ATMs during the European sovereign debt crisis. Greek students told me stories about how their families dealt with the lack of cash in the economy. Let’s just say that your surname means more than the size of your bank account when you can’t get at the money.

    Being unable to pay because of a lack of cash, even though you have plenty of money, is a bizarre nightmare. But it’s not rare.

    These examples show how, when it comes down to it, the digital payment infrastructure is designed to be a more convenient way to business, not a reliable one. When things go wrong, cash is literally flown to trouble spots by the planeload. Cash is still king.

    Why? In the end, physical cash is the most basic asset around. Gold can be traded, but not spent. Digital money can be moved and stored far more conveniently, but it needs infrastructure to work. Cash needs just you and the seller, nothing else.

    Cash in world of financial fragility

    The power of a cash drain is also exposed by what it can do to banks. Bank runs remain a real thing, even if banks are entirely digital. The first recommendation Catalan separatists urged their supporters to do was withdraw cash from Spanish banks to apply pressure to the government.

    For financial infrastructure to function, an alarming amount of things must run smoothly. Power, bank systems, payment systems, communications systems, financial markets, governments and more. In a crisis, rolling failures in these are likely. Not to mention government-mandated shutdowns.

    Convenience and cost are huge gains from digitisation. But what are the costs? Robustness? Surveillance? A false sense of confidence?

    What’s clear is that, in any crisis, there’s a war for cash. Being among those who are cashed up in these situations can be an extraordinary benefit. A widespread shortage of money means prices tumble. The ability of money to make exchange possible makes it immensely valuable during these times.

    So what should you do? Boaz Shoshan is working on a set of recommendations about issues like this. Cash is just one thing you need to have in a world of threats – economic and political. His reports should be ready soon.

    In the meantime, just wait and see what happens if there’s a major power outage in India and the economy freezes. Suddenly, having cash will become a national security issue.

    Bitcoin in the War for Cash

    Where does bitcoin stand in the War for Cash? It depends on the crisis you’re expecting.

    On the one hand, bitcoin doesn’t require much of the infrastructure that digital money does. Governments, banks and much more can be down or restricted and this will only boost bitcoin. That’s what’s happening in Zimbabwe right now. There’s an 80% premium inside the country if you pay in US dollars. People willing to fly to Zimbabwe with bitcoin and return with suspicious amounts of cash can do so at a whopping arbitrage profit.

    On the other hand, bitcoin relies on power and communications systems. And a lot of both. The payment system Square, which lets you plug a little USB dongle-sized device into your phone to accept payments from credit cards, is testing bitcoin on its systems. So the variety of payment systems is increasing, improving robustness. But bitcoin still suffers from many of the same weak points as digital money.

    The combination of infrastructure bitcoin requires creates odd situations. For example, electricity is heavily subsidised in Venezuela, creating a bitcoin mining boom there. Chinese people live under capital controls, so they use bitcoin as a transaction method. The Japanese and South Koreans buy bitcoin each time North Korean tensions escalate.

    Bitcoin’s future might just be determined by the types of crises we have. Then again, there seems to be a cryptocurrency for everything.

    Until next time,

    Nick Hubble,
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

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  • Interview with the Real-Life John Connor

    16.11.2017 • United KingdomComments Off on Interview with the Real-Life John Connor

    Andrew Lockley – Exponential Investor (United Kingdom) –

    As technology progresses, it tends to unleash unforeseen horrors. The same breakthroughs that give us ploughshares also give us swords. That was literally true in pre-history, when early metallurgy’s inexpensive swords unleashed an unprecedented wave of violence throughout early civilisations. It was also metaphorically true on many other occasions – such as when industrialised production gave us World War I – facilitated by machine guns and poison gas.

    Will AI open a similar can of worms for humanity?

    Sci-fi offers a variety of visions for the artificial intelligence (AI) future, ranging from the benign to the terrifying. The Terminator films probably best represent our collective fear of rogue AI. We’ve all grown up with the nightmare of terrifying humanoid drones attempting to take over the world – with only Sarah and John Connor to save us from annihilation.

    Today, we’re talking to a man whose real-life work is to ensure that the evil machines don’t win. Dr Richard Jennings is an expert on the ethics of AI. He’s an affiliated scholar at the Department of History and Philosophy of Science at the University of Cambridge. I caught up with him at the university’s CUTEC Technology Ventures Conference on AI.

    AL: Shahar Avin’s conference talk really helped me get to grips with the problem. He introduced Nick Bostrom’s “paperclip maximiser”. Can you explain that?

    RJ: The paperclip maximiser is a “thought experiment”, to illustrate the dangers of rogue AI. The idea is that an entrepreneur tasks an AI with maximising the production of paperclips. He imagines that the AI might achieve this seemingly innocuous goal by moving machines around in the factory. But the AI has no idea of context – and in the pursuit of maximising paperclip production proceeds to eliminate the human race and expand throughout the universe.

    AL: Isn’t that a bit silly?

    RJ: Quite possibly – but it certainly helps draw people’s attention to the potential for things to go disastrously wrong if we don’t look carefully at all the consequences of how we task AI.

    AL: IT ethics is a field many people won’t have considered. What got you into it?

    RJ: I’m a philosopher of science. In the late 1970s I began lecturing at the University of Cambridge Department of History and Philosophy of Science. In the late 1980s I developed an interest in ethical issues in science. Early in the 1990s, I began lecturing on science ethics to science students. A few years after that I was asked to lecture Computer Sciences students on IT Professional Practice and Ethics. The Cambridge Computer Sciences degree is accredited by the British Computer Society (BCS), which is the Chartered Institute for IT. On their next accreditation visit, I met with members of the team – and I was subsequently asked to join their Ethics Forum. I served until around 2012, and I coordinated the group which developed the current BCS Code of Conduct.

    AL: How does your work impact on the risk of “rogue AI”?

    RJ: The BCS is a professional , so it is concerned to maintain high standards of professional activity. Much of this is focused on the quality of the work done, and the conduct of the members. But the first area addressed by its Code of Conduct is public interest. The first public interest concern is that members should “have due regard for public health, privacy, security and wellbeing of others and the environment.” Preventing rogue AI falls pretty squarely into that!

    AL: We’re very used to hubristic media coverage of the benefits of tech. Do you find it hard to get people to take the risks seriously?

    RJ: IT, like science in general, is a double-edged sword. It can be used for bad as well as good. What we heard at the conference all seemed pretty good, but members of the audience quite rightly raised questions about the downsides. This logically leads to questions about IT being subject to ethical regulation – and, if so, who should manage the regulation. Since IT is largely being developed by industry, that would suggest that industry is the de facto regulator.

    AL: Is industry able to engage in ethical regulation?

    RJ: It can be argued that industry is more concerned with profit than with ethical issues. Many would claim that industry is unable to regulate itself. For example, The Corporation film argues that corporations are essentially psychopaths.

    AL: So, who should be responsible for regulating AI technology?

    RJ: Maybe professional organisations, like BCS, are in the best position to regulate the industry, or perhaps transnational governments like the UN and the EU. One of the last projects I was involved in at the BCS Ethics Forum was the creation of a methodology for the assessment of new and emerging technologies. Two of our main starting points were the United Nation’s Universal Declaration of Human Rights and the Charter of Fundamental Rights of the European Union. The values embodied in these two documents are also embodied in the BCS Code of Conduct.

    AL: Are governments capable of regulating IT?

    RJ: It depends on the government – there are totalitarian governments, weak and wobbly governments (eg, present-day UK), governments which represent corporate interests (eg, the current US government), and transnational governments (eg, the UN and the EU).

    AL: But can these abstract discussions prevent potential dangers resulting from IT?

    RJ: I think so. After all, the potential dangers of AI and robotics was anticipated years ago by Isaac Asimov. In a 1942 sci-fi story he introduced the Three Laws of Robotics, the first of which was: “A robot may not injure a human being or, through inaction, allow a human being to come to harm.” If we are going to develop AI that interacts with humans, we must certainly build into our programme the concept of human injury or harm. Then of course we need to build into the programme that humans are not to be injured or harmed. In the second keynote address given to the conference, Hermann Hauser argued that humans and AI will co-evolve. I am sure that part of that co-evolution will involve the preservation, indeed, the benefit, of human beings.


    That’s an optimistic conclusion. Do you welcome our new robot overlords? andrew@southbankresearch.com.

    Best,

    Andrew Lockley
    Exponential Investor

    -Read more at www.exponentialinvestor.com-

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  • “Go Big or Go Home” in These Small Niche Sectors

    15.11.2017 • United KingdomComments Off on “Go Big or Go Home” in These Small Niche Sectors

    Andrew Lockley – Exponential Investor (United Kingdom) –

    Before we get started I just wanted to highlight a short video Eoin Treacy has made on bitcoin’s trend. A few weeks ago he used his trading expertise to look at the bitcoin chart in a different way, and he predicted bitcoin would hit $7,000. Today, he has another video on where he believes bitcoin is ing next, you can get access to it here.

    Yesterday, we looked at how the “power law” was the key to picking winning investment strategies. It dictates that the most of the value of firms in any given market is normally concentrated in the top few names. In inherently concentrated markets, such as social media, that largest single firm often has 50% of the total market capitalisation.

    From an investment point of view, it comes down to one key principle: go big, or go home – and that’s why Facebook is grinding Snap Inc. into the dirt. The firm has lost half its value in a year – while Facebook is up by half, in the same period.

    Strangely, you may not think of the consequences of this law in the correct way. It’s certainly true that investing in the world’s largest companies (or firms which are destined to become them) can mean your investments perform very well. The difficulty with this approach is that, once it’s obvious that a firm is dominating a sector, much of the value increase is already built into the price.

    To explain this another way…

    If you could be on horses within a race, then at some point the lead horse would trade at almost zero return. Even if half the race is still to be run, a horse that’s sufficiently far a of the field will be priced as if it has already won.

    Accordingly, it’s often a smarter move to focus on smaller niches, but follow the same investment principle. Instead of looking for the Amazon of e-commerce retail, you might look for a specialist sector, in which Amazon is unlikely to compete. Here, you can find new niches, which are ripe for disruption.

    For example: while Amazon is currently the world’s biggest B2C ecommerce retailer, it’s unlikely that it would become the number one wholesale supplier to pharmacies. This sector is sufficiently different to Amazon’s core business model to make it an unlikely breakout strategy for the firm. Therefore, looking to back the potential “Amazon of pharmacy supplies” may be a very smart move.

    I hope that this relatively simple rule of thumb for investing will help you use your money in a smarter fashion. It’s certainly an approach I’m taking myself – and some of the most successful businesses I’ve previously held a stake in have taken this approach. They’ve dominated by looking to create an early lead, and become the biggest fish in a small pond.

     

    Conversely, I instinctively shy away from contested sectors

    If there are half a dozen firms all vying for the top spot, I know that my chances of picking a winner are pretty low. Accordingly, my focus is on trying to find firms which have an obvious capacity to dominate, in the first place. This does not necessarily mean I’m looking to back the very first firm entering an industry sector. Instead my focus is on finding early-mover firms, which are clearly capable of dominating.

    This strategy is supported by a study by Bill Gross (covered in his TED talk). This demonstrates that the winning companies in recent decades have typically had one thing on their side: timing. Being the firm that comes to market at the right time is the key to dominance. Too early, and your vision is too far a of the market: investors may not support you; and consumers are likely to be underwhelmed by your offer, even if they believe in your vision. For example, I’d love a completely non-polluting electric car – but I’m not prepared to sacrifice my petrol car’s near-instant “charging”, and ubiquitous refuelling network.

    Competitor versus Disruptor

    Similarly, firms that are too late to market inevitably face a struggle to compete with entrenched players. Once you’re a competitor of giants, as opposed to a disruptor of giants, you’ve really got your work cut out to make that critical number one position. That’s why today’s industrial behemoths often have very long histories. In spite of rebrands and reorganisations, firms like Esso, Ford, Boeing, etc, have histories stretching back many decades – and, in some cases, well over a century. In all likelihood, the established incumbents in any given market tend to remain so, until a genuine disruptor comes along. This vulnerability is a complement to the power law, enabling you to pick well-timed disruptive investments, which have the capacity to dominate individual niches or markets.

    In today’s market, look to back firms that have an early lead in disrupting established competitors – but yet are sector dominant. Some great examples of recent winners are Airbnb, Tesla, TransferWise, etc. Behind them are promising upstarts, who may be poised to become the power law winners of tomorrow: Monzo, Matternet, Boom Technology, Bigelow Aerospace, Hybrid Air Vehicles – and, of course, many others. Finding these exciting firms is what Exponential Investor is all about.

    How are you putting the power (law) into your portfolio? Let us know – andrew@southbankresearch.com.

    Best,

    Andrew Lockley
    Exponential Investor

    -Read more at www.exponentialinvestor.com-

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  • Inflation Won’t Save the U.K. from Government Debt

    15.11.2017 • United KingdomComments Off on Inflation Won’t Save the U.K. from Government Debt

    Nick Hubble – Capital and Conflict (United Kingdom) –

    The butterfly effect explains how a fluttering of little wings can trigger a hurricane on the other side of the world.

    Central bankers have been fluttering their little fingertips over the “0” key, generating trillions in digital money. Today, we go storm hunting to try and find the disturbing results around the world.

    The first consequence is obvious. Central bankers have bought up vast swathes of government bonds, pushing up prices and pushing down interest rates.

    But they also bought corporate bonds, asset-backed securities and stocks. This chart summarises which major central banks bought what:

    Chart showing the relevant market size estimates and the share owned by central banks (mid-August 2017)Chart showing the relevant market size estimates and the share owned by central banks (mid-August 2017)

    The result is record low bond yields, record high stockmarkets and record low spreads between government bonds and corporate bonds of various levels of risk. In other words, everything went up. (Except the Aussie stockmarket, where there was no quantitative easing (QE), and still no record high…)

    In Europe, the sovereign bond buying has been most interesting. The European Central Bank (ECB) is constrained by more rules than its counterparts around the world. And it presides over multiple governments. Put the two together and you get uneven purchases of government bonds. That in turn benefits countries unevenly.

    The Germans have benefited greatly

    With their vast amount of bonds and higher credit rating, the ECB has mopped up the bund market while implementing QE. Smaller countries with worse ratings haven’t gotten the same boost. A great example of how EU rules make those countries grumpy about the implicit German favouritism.

    But lately, the ECB has run out of German bunds to buy. In fact, there isn’t much left to buy in Europe if they stick to the rules. QE may have hit a legal limit. But laws can be changed.

    Over in the private sector, low interest rates have done nothing less than revived the dead. Bank of America Merrill Lynch’s credit strategists put together a report called “The rise of the Zombies” which researches the number of zombie companies.

    These are companies that can only pay off their debts thanks to extraordinarily low interest rates. The analysts put the figure at 9% of non-financial companies in Europe’s Stoxx 600 index. That’s almost double the 2013 amount.

    A huge backlog of corporate failures that haven’t happened

    Rupal Bhansali from the fund managing company Ariel explained on CNBC that these firms can’t actually make the interest payments, it’s just that they are capable of delaying the reckoning thanks to the extremely cheap credit they can access.

    Outside companies listed on the stock exchange, between 20% and 30% of small and medium-sized companies are suspected to be zombies in the UK, EU and US according to the ECB.

    Eoin Murray, of investment at Hermes Investment Management, explained it all beautifully: “Like animals in captivity, companies incubated on the milk of QE and low rates may no longer exhibit the natural behaviours needed for success in the wild of a stimulus-free market.”

    The Telegraph explains how this will look for UK businesses:

    More than 448,000 companies were in trouble at the end of September, up 27pc on last year, according to research by business recovery specialist Begbies Traynor.

    Julie Palmer, a partner at Begbies Traynor, said businesses had taken “too many risks after being lulled into a false sense of security” by low interest rates. 

    The world’s companies are on an interest rate knife-edge

    Retirees and pension funds are being squeezed by low interest rates too, in a different way. They had assumed returns between 5% and 8% a year thanks to academics’ promises. But interest rates tumbled, crushing the returns of safe-haven assets. The result is a shortfall measured in the trillions of US dollars, and growing very rapidly:

    Chart showing shortfall measured in the trillions of US dollars, and growing very rapidlyChart showing shortfall measured in the trillions of US dollars, and growing very rapidly

    Source: World Economic Forum

    Now that we’ve stacked up the consequences of central bank action, let’s examine what a return to normal would mean. If the concept of “mean reversion” holds and interest rates, stockmarket valuations, bond spreads and everything else the central bankers have fudged return to normal, what would our world look like?

     

    Financial zombie apocalypse

    Normal interest rates would sink entire governments. Currently, the euro area governments use 5% of their tax revenue to pay for interest expense. Many have yields at or close to 0%. Interest bills could double or triple or more if rates go back to normal, bringing interest expense above the 1980s highs of 10%. Combine this with falling tax revenue and rising government spending and you get dangerous maths.

    Tim Price explains just how fragile our British government is here.

    But it’s not just rising interest rates that are a threat. Here in the UK, even inflation won’t rescue the government from its vast debts. Historically, debt could be inflated away into meaningless denominations. But these days, governments often borrow using inflation protected bonds. More than a third of UK government gilts are inflation indexed. So as inflation rises, the interest expense goes up with it.

    This is a wonderful example of how hubris gets you into trouble in financial markets. Thinking the Bank of England had inflation figured, the Treasury reconfigured its borrowing habits. Now they’ll have to pay the price for faith in central bankers.

    What about the private sector?

    Low interest rates have backed up a vast amount of company failures, job losses and economic pain. Raising rates could trigger the lot, including the failure of about 250,000 zombie companies in the UK alone.

    How many of the world’s companies will be forced to raise equity, refinance at rates that destroy profitability, or declare bankruptcy when rates rise? As those firms go down, their partners will too. Then the funds that invest in them.

    The new-found importance of central bankers has created a political mess too. Suddenly, monetary policy, exchange rates and the euro are hot topics in political races. Already the issue has made itself felt in elections this year.

    Next year, the Italian election risks turning into an anti-euro referendum, if it isn’t already. Ironically enough, the ECB is planning on halving its QE programme just when the Italians decide on whether to support anti-euro parties. If it turns out they can’t withdraw, the painful consequences of trying will coincide with the election. Having the ECB trigger economic chaos isn’t encouraging for euro enthusiasts.

    Higher contributions from companies and governments to keep pension funds funded are already squeezing budgets. The problem is even causing trouble in paradise. Maui County in Hawaii is pushing up taxes to try and deal with a 50% increase in mandated pension contributions. The major pension systems of the world will be more than $200 trillion short by 2050. Good luck raising the funds…

    Altogether, a world with normal inflation and normal interest rates looks like a financial zombie apocalypse. It’s the impossibility of normality.

    The solution is to go camping

    The horrific outcomes of a world returning to normal puts you in one of three camps. The first is an actual campsite, where you plan to wait out the financial apocalypse.

    The second option is to predict that central bankers will never allow the world to return to normal. They’ll maintain QE and low interest rates. They’ll do “whatever it takes”, as Mario Draghi once said, to maintain the status quo.

    The third option is that the world’s decision-makers will push the reset button on the whole system. Your financial wealth is only accounting entries after all. If someone can’t handle their liability side of the balance sheet, they can just strike off someone else’s asset side. That’s what happened to Lehman Brothers’ creditors.

    Bitcoin’s biggest profits

    Yesterday we took a look at bitcoin arbitrage opportunities. As ever, Sam Volkering was on the case before me. Here’s his explanation for why the bitcoin price is different in different places:

    So the thing with these price differentials (like in Zimbabwe) is that, in most jurisdictions, to actually get into bitcoin (from fiat money), you need to purchase through an exchange typically in that jurisdiction, which most often requires some form of identification.

    Thus you find that someone in Zimbabwe typically can’t set up an account with Coinbase unless they can get access to UK/US/Australia etc. payment card and a VPN (which disguises their location). Likewise I can’t set up a US-based exchange account unless I’ve got US ID and a US payment card and then set up my VPN for the US. But I can set up a UK and Aussie one and regularly buy in both markets. The downside is more stable countries like the UK and Australia don’t display that arbitrage opportunity.

    But you are correct in saying this is a huge arbitrage opportunity if you know how to work it. In fact I’ve utilised this before in other crypto thanks to arbitrage existing between crypto exchanges for particular crypto. The other difficulty though can be the speed at which you need to move around the blockchains. That can decrease the arbitrage opportunity.

    I actually wrote about this in a Revolutionary Tech Investor weekly update from 14 June this year. If you track that down you can read about my crypto arbitrage experience.

    But there is consistently plenty of arbitrage opportunity in crypto markets if you know how to move about and in and around exchanges – and if you can have open fiat-to-crypto accounts in multiple jurisdictions.

    You can check out Sam’s cryptocurrency work here. He takes you through which cryptos to buy, avoid and more.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

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  • Our Future Will be a Zombie’s Paradise… No Work. No Thinking

    15.11.2017 • United StatesComments Off on Our Future Will be a Zombie’s Paradise… No Work. No Thinking

    Bill Bonner – Bill Bonner’s Diary (United States) –

    BALTIMORE – We were disappointed to see the pedestal… naked… forlorn… its statue gone… its purpose defunct.

    For more than a century, the bronze statue of Supreme Court Justice Roger B. Taney – gravely pondering the weighty issues of the mid-19th century – graced the park.

    Now he is gone.
    img

    Justice Taney’s statue in Baltimore has been hauled off

     

     

    No Decisions Necessary

    Now, we are so much better people.

    Because now we have so many rules, regulations, and protocols, we have no choice in the matter. We no longer have to be wise, clever, or good. No pondering necessary. We just have to obey!

    For example, you have thousands of choices about which drugs to take.

    Many of them will kill you, but you don’t want to go to the grave after taking an “illegal” drug. Better to take a doctor’s preion; then your grieving spouse can sue some.

    No fanny pinching without prior consent! If your wife tells you it’s okay, tell her to put it in writing. And consult a lawyer.

    Unless, of course, you are famous or powerful; then, the President of the United States of America says you can do whatever you want.

    And no tax avoidance… unless it is specifically authorized in one of the 71,689 pages of the U.S. tax code. Or perhaps in the 459-page Senate tax reform proposal.

    That is progress! Everything is carefully laid out for us.

    “Take off your shoes… take out your laptops…” The SEC gives us 80 years of rulings to guide our investment morality.

    And if the impulse to say something hateful to your neighbor comes over you, you’re saved: It’s against the law. Discrimination is unlawful, too.

    And according to a full-page warning in yesterday’s Wall Street Journal, it is against the law even to “steer” people to neighborhoods where you think they will be more at home (that is, where other people like them live).

    And now, there is no longer any need to separate the deserving poor from the layabouts; the feds are in charge of charity. Old people? Cripples? Half-wits? The feds will take care of them, too.

    That’s the great advantage of living in a degenerate civilization; the authorities will make the decisions for you.

     

     

    Robot Butlers

    If only Roger Taney had had access to the internet. Surely, he would have come down on the right side of that Dred Scott decision, and he’d still have his place in the park.

    And now that we have electronic brains in abundance, there will be no more errors. No more moral failures. No more accidents. And no more “Oh, I didn’t know that” replies when you are caught breaking one of the 10,000 commandments that govern our lives.

    Our cars will be self-driving. And robot butlers will bring us our clothes in the morning. (No more mixing plaids… no more clashing colors.)

    Yes, dear reader, here is where it starts to get interesting.

    Back in the summer, Morgan Stanley predicted that quantum computing would soon lead to “exponential acceleration” in the ability of computers to think.

    Pretty soon, computers will be smarter than we are. They can decide what pants we wear.

    Speaking for ourselves, we are neither surprised nor impressed.

    Computers have been getting smarter all the time; humans, on the other hand, have been getting dumber. They were bound to meet somewhere.

    Now, according to the experts, these smarter computers will do all the work that used to be done by bipeds.

    This thought has delighted both central planners and cabbage people.

     

     

    Zombie Paradise

    The former are busy figuring out how to keep control over the machines… and use them to create the perfect societies they’ve always wanted.

    The latter are planning full-time retirement.

    Where the two come together is in a Guaranteed Basic Income. From a post at Medium:

    As long as we force each other to work for money in order to live, automation will work against us instead of for us. It is a civilizational imperative that we decouple income from work so as to create economic freedom for all.

    Without an unconditional basic income, the future is a very dark place. With unconditional basic income, especially one that rises as productivity rises as a rightful share of an increasingly automating economy, the future is finally a place for humanity.

    We don’t know where humanity has been all these years! But finally, the future we’ve all be waiting for. A zombie paradise. No work. No thinking.

    Which just illustrates why it will be so easy for machine intelligence to overtake the organic kind.

    More to come…

    Regards,

    Bill

    -Read more at bonnerandpartners.com-

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  • Earn a Free Holiday to S. Korea!

    14.11.2017 • United KingdomComments Off on Earn a Free Holiday to S. Korea!

    Nick Hubble – Capital and Conflict (United Kingdom) –

    There hasn’t been much about bitcoin in Capital & Conflict of late. Our friends at Exponential Investor are the experts. You can sign up for free, just like Capital & Conflict.

    The cryptocurrency certainly is in the mainstream media nowadays. Its actual users are still a tiny proportion of the potential. As one cryptocurrency fund manager put it, “I can hear the herd coming.” The debate about “bubble or no bubble” rages.

    Even if a zero or two have been added on to the figures, the price action in bitcoin has been as wild as ever lately. The moves are measured in hundreds of pounds instead of dozens, but the percentage falls and gains aren’t new.

    The price of bitcoin doesn’t interest me much. It’s an exchange rate, not a price. Saying that one bitcoin can buy £5,027 is as meaningless as saying one pound can buy 149 yen or 1.12 euro. That’s not useful information by itself. You have to adjust for the price level in each country.

    Despite the pound’s ability to buy 149 yen, which makes you feel rich, a tourist from Shropshire will find themselves giddy at the price of a cab in Tokyo. The point being that an exchange rate alone isn’t important. You have to adjust for price levels.

    The change in the exchange rate over time and its volatility is important though. Bitcoin is up many hundreds or even thousands of per cent over the last few years. The volatility is high too.

    But there’s something far more interesting going on.

    What makes exchange rates useful is the cost of living in each country. But bitcoin doesn’t have a country. Does it? So what is the basis of its value?

    Is bitcoin useful because of its characteristics? Instant, free, anonymous transactions are great. If bitcoin can actually deliver on these promises. More on that below.

    But first, let’s take a look at the free holiday bitcoin promised you just months ago.

    Consider the premium which people in Japan, South Korea and Zimbabwe pay for a bitcoin. South Koreans paid about 15-25% more than their counterparts in the US and Europe for bitcoin. Japan’s premium reached 30% and in Zimbabwe the price almost hit double recently.

    It’s not a currency issue, as I suspected at first. This is measured in US dollars, which are used in Zimbabwe. And the Korean won and Japanese yen trade freely with other currencies.

    Take this example from earlier this year:

    On May 25, Cointelegraph reported that Bitcoin price surpassed $4,500 in South Korea as the market’s premium reached an extreme. Bitcoin was traded within the South Korean Bitcoin exchange market for as much as five million Korean won, the highest bid in the global Bitcoin exchange market’s history.

    At the time, the global average Bitcoin price barely reached $2,600 prior to a major market correction which ultimately led to a $700 decline.

    So here’s my question for the bitcoin faithful: if bitcoin has the features claimed by its proponents – anonymity, ease of transaction, etc – how can this price disparity exist?

    Bitcoin offered a free holiday in South Korea

    At a $1,900 premium per bitcoin in South Korea, a moderately wealthy Brit could buy a few bitcoin, go on holiday in Korea, sell the bitcoin there, pay for the hotel, return to the UK, exchange their remaining Korean won for pounds and pay off the cost of their flight on the credit card.

    Even after the commission on currency exchange when you get back, the profit per bitcoin you take to Korea would be well over £1,000.

    It’s a free holiday!

    I’ve asked our bitcoin experts about the idea.

    Unfortunately, the premium on bitcoin is rapidly plunging in Japan and South Korea. And I don’t want to go on holiday to Zimbabwe.

    But why did the arbitrage opportunity come into being? (That’s the actual question I asked our bitcoin experts Sam Volkering and Eoin Treacy. I’ll publish their replies tomorrow.)

    From what I can gather, it’s something to do with the tough money laundering laws in South Korea and Japan. Which just illustrates how bitcoin remains reliant on government infrastructure to function. So much for anonymous, instant and free transactions…

    Then again, the premiums in Japan and South Korea have disappeared in the last few months. So what’s going on?

    The real story isn’t speculation

    Leave the price action behind and ask yourself about the potential uses of bitcoin and its competitors. Why use them? Are they convenient enough? Are they truly anonymous, gold backed or whatever it is they promise? Is it safe to keep them in the wallets and institutions that make them useful?

    Not many of us are stuck in Venezuela or Zimbabwe. In countries with failing currencies and painful capital controls, bitcoin does make sense. That’s why the bitcoin price in Zimbabwe is about double elsewhere. (The US dollar’s value in Zimbabwe is less than 20% of its face value according to Reuters, so bitcoin is hardly the odd one out.)

    I think bitcoin’s power for the financially downtrodden has been proven beyond doubt. And it’s a huge boon to humanity in the fight against government control.

    The cryptocurrency revolution just doesn’t seem robust

    Most who buy cryptocurrencies are speculators. Most in the industry are shifty. If you actually try to use or sell cryptocurrencies, the roadblocks pop up everywhere.

    If the crypto world’s boom is based on past price increases and not the usefulness of the technology, the trustworthiness of institutions or the problem solving capability of the currencies, then the price will crash eventually. From how high, nobody knows.

    The thing is, I’m gradually being proven wrong. Usefulness, convenience, trust and many other factors are steadily growing. Not at the pace of the price, but improving nonetheless.

    The famous Bitcoin Girl described to me how on her travels she pays her followers in bitcoin for local money, leaving the transaction cost of currency exchange at 0.

    The news has many further stories of success, where bitcoin has solved a genuine problem quite well.

    Then there’s blockchain technology. The useful concept behind bitcoin has many other applications. If the world integrates blockchain, cryptocurrencies will get a boost.

    My point is, you don’t have to decide whether bitcoin is a bubble or the technology that revolutionises our economy. It can be both. Perhaps your focus should be on how you can use bitcoin to change your life, not just get rich.

    The tech bubble anticipated how the internet would change our world. But it was a bubble too. And many of its companies failed. For investors, it was a divisive event. Some gained wealth, some lost. Today we use the internet for everything.

    The same goes for railroads, land in the New World and so on and so forth. Bubbles heralded the promised change, it’s just that prices too.

    If you want to navigate this world to understand how to make use of cryptocurrencies and to discover which ones will survive the bubble, you need this man’s help to do it.

    One word of warning. Developments in South Korea and Japan show how bitcoin’s success is tied to government policy. Only once bitcoin was approved by the government did the premium disappear.

    Bitcoin will not be the libertarian currency some had hoped for. It will be the digital currency that technology enthusiasts hoped for.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

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  • The One Weird Law Bringing Snap Inc. to Its Knees

    14.11.2017 • United KingdomComments Off on The One Weird Law Bringing Snap Inc. to Its Knees

    Andrew Lockley – Exponential Investor (United Kingdom) –

    Why is Snap Inc. taking such a battering?

    What if I told you there was one weird law that unlocked this secret? (But, sadly, it won’t do anything about belly fat.)

    What’s more, this law applies to investing in many markets. You might be surprised to learn that such a wide variety of industries tend to exhibit the same pattern of behaviour. However, it’s entirely accurate to use the same law across many investment sectors.

    It’s called the power law (power as in maths y=x-k – not as in electricity, or might)

    You might know it as a long-tail distribution, or the 80/20 rule. It applies to a very wide range of datasets – everything from the size of cities to the diameter of meteor craters. Simply put, you ordinarily get a few big things, and a lot of small things. That’s as true of book sales as it is of floods or storms. For every Harry Potter, there’s a slew of books on critical feminist theory, which hardly anyone buys.

    This law is something I’ve been sitting on for quite some time, and I ought to have brought it to your attention earlier. It was introduced to me by an American investor, who helped me understand something I already kinda knew – but with a much clearer focus.

    Right now, this law can explain why Snap is having such a difficult time. Yesterday’s darling has recently announced some very poor results – leading to a precipitous drop in the stock’s price.

    Why am I telling you about losing stocks?

    If you caught this drop, you could have made a great trade, by shorting Snap. Backing winners directly isn’t the only way to play a market, and a short is equally valid. Simply put, shorting allows you to sell a stock you don’t own, then buy it back later. If the price falls, you can make a killing – but get it wrong, and you can face unlimited losses. It’s a strategy that’s not for the faint-hearted, and typically merits judicious use of stop-losses. Now, back to how to pick the winners (and losers) to trade…

    How does the power law explain why Snap is struggling to make way?

    Simply put, the power law explains that the value of companies in a sector tends to fit to a mathematical function known as a power law curve. Although power law functions can change in their shape with different parameters, we can keep things simple – because that makes the power law function a whole lot more useful to investors.

    Without going into detail about the mathematical properties of how power law curves are derived, one crude rule of thumb to explain how they’re used in investing is this: the value of the largest company in many industries is typically larger than the sum of the value of all its competitors. This is true in sectors which have some tendency towards concentration (ie, dominated by a few large firms). If you think of the leading tech companies, then they tend to follow a power law distribution, expressed in that relatively accessible way. I haven’t done the maths for each of the below sectors, but I hope you can intuitively see the logic.

    Facebook is likely worth more than all the social networks in the world put together: LinkedIn, Twitter, etc. That’s why Snap is really struggling to overcome its might.

    eBay is the probably the largest second-hand goods market in the world, eclipsing the sum of all others: Depop, Auto Trader, etc.

    Amazon is certainly the largest ecommerce retailer in the world – and its value is likely higher than the sum of all other competing e-commerce retailers: Boohoo, Wicked Uncle, Figleaves, Etsy, etc.

    The point of making such a play of the power law is that it drives home the importance of picking winners. Number two in a market is nothing. Second place is a fail, time to go home. Only backing the winner will really yield any significant buy-and-hold investment returns.

    Of course, a well-timed investment in any firm can lead to profit. However, if you’re a long-term value investor, picking between firms that are on the up, it’s essential to remember that only the star of the group will have any meaningful return at all.

    What does this mean for your future investment strategy? Check back tomorrow, where we’ll discuss in depth how to trade using the power law.

    What do you think of this one weird law – andrew@southbankresearch.com.

    Best,

    Andrew Lockley
    Exponential Investor

    -Read more at www.exponentialinvestor.com-

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  • When Will Venezuela Default on Its Bonds?

    14.11.2017 • United StatesComments Off on When Will Venezuela Default on Its Bonds?

    Bill Bonner – Bill Bonner’s Diary (United States) –

    BALTIMORE – On Monday, Caracas rolled out the red carpet – literally.

    In one of the funniest shows in modern capitalism, bondholders were invited to a special meeting in the Venezuelan capital.

    A few turned up. They wanted to know what to expect.

    The country is going broke – fast. Oil output is at a 28-year low… cash is disappearing… chaos is spreading. When would Venezuela default on its bonds?

    The meeting lasted 30 minutes. No questions were allowed. And then, less than 24 hours later, investors got their answer: today!

     

    Rendezvous With Glory

    Hold on…

    We’re back in good ol’ Baltimore. There’s nothing quite like it.

    Thank God.

    Every place has its own character, its own , and its own life cycle. Baltimore peaked out in the 19th century, when it was the richest city in the United States.

    It has been downhill ever since.

    An hour to the south of the city is Washington, D.C., with a different culture… a different economy… and a different rendezvous with glory.

    Baltimore depended on trade and manufacturing for its wealth. It lost market share when shipping began using New York’s harbor and manufacturing decamped for what is today the old industrial heartland – Ohio, Indiana, and Illinois.

    Washington was always a parasitic town. It was small and relatively modest when government was restrained. But as the feds grow bolder, Washington grows richer.

    Corporations move their quarters to nearby Maryland or Virginia, where they will be close to their lobbyists.

    The “defense” industry has practically taken over northern Virginia, where it is in position to suborn lawmakers and bribe generals. And law firms perch in downtown towers, like buzzards in a dead tree.

    Peak Baltimore may be long past; Peak Washington is still a.

    Big-Personality “Leaderismo”

    No matter what kind of political system you have, as Italian sociologist and economist Vilfredo Pareto noted in the early 1900s, the insiders always figure out how to game it.

    In Washington, Deep State insiders now control the White House, both houses of Congress, the Pentagon, and the bureaucracy.

    President Trump brought in a new team a year ago. Some thought he would run the Old Establishment out of Washington.

    Like Jesus chasing the moneylenders out of the temple, they expected him to turn the tables on the insiders… and Make America Great Again.

    It didn’t happen.

    Instead, Mr. Trump joined the Deep State so fast, it looked like the fix was in from the get-go.

    And now, the insiders have the perfect combination – a White House that claims to be their enemy while enabling and abetting everything they want to do. For example:

    • Trump, Pelosi, and Schumer crashed through the debt ceiling.
    • The president installed a new Fed chief who is a swamp rat, just like the old Fed chief.
    • No cuts to the Pentagon budget… no reduction in America’s goofy “wars” in the Middle East… no change to the cozy relationships with Israel and Saudi Arabia.
    • No cuts to the welfare state budget… Obamacare is eternal… bankruptcy is guaranteed.

    In short, it’s business as usual… but with a big-personality “leaderismo” who has bluffed and bullied the conservative opposition.

     

    Systemic Corruption

    Former Venezuelan president Hugo Chávez achieved much the same thing.

    But rather than pretending to be a conservative like Trump, he pretended to put “the people” in charge. And rather than turn the country into a socialist paradise, the Chavistas did what insiders always do: They looted the place.

    As Maggie Thatcher put it back in the 1970s, “The trouble with socialism is that eventually you run out of other people’s money.”

    Venezuela is running out of other people’s money – fast. And with the economy badly mismanaged… and the end coming, the insiders are getting while the gettin’s good.

    In the U.S. and Europe, the corruption was widespread, systemic, and subtle.

    Big financial players knew (did European Central Bank president and former Goldman boy Mario Draghi tell them?) that the fix was in.

    They could buy speculative bonds without risk. Central banks made sure they didn’t go down. (Lower bond prices would mean higher yields, and higher borrowing costs, which central banks were determined to avoid.)

    Instead, bond prices went up. Yields went down. And sharp traders made as much as 1,000% profit.

    In Venezuela, government bond prices plunged – and yields, along with borrowing costs, spiked – as it became obvious that the country was going broke.

    The economy is down 30%. The rate of annual inflation is running at 2,300%, according to the International Monetary Fund. Stores are out of food. Pharmacies have no more medicines. Hospitals can’t put clean sheets on the beds.

    Plugged In

    But somehow… the “socialist” government kept paying the interest on its bonds.

    The people may suffer and even die… but the capitalists still made money.

    Why would a “socialist” government favor rich lenders over poor citizens?

    Do you have to ask?

    Here’s the Miami Herald:

    …an open secret among U.S. traders, is that most buyers of Venezuelan bonds have been the so-called “enchufados,” or “plugged in” members of Maduro’s ruling elite and their business cronies.

    Whenever Venezuelan bonds plunged amid international expectations that Maduro would default on the country’s debts rather than cancel all food imports, Venezuelan officials and their cronies in the business world would buy PDVSA [Venezuela’s state-run oil company] bonds for 20 or 30 cents to the dollar, with inside information that Maduro would not declare a default.

    The fix was in. It always is.

    And the gettin’ is always good until it isn’t.

    This morning, credit ratings agency Standard & Poor’s declared Venezuela in default.

    Regards,

    Bill

    -Read more at bonnerandpartners.com-

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  • Beware the Second Half of the Market Cycle

    13.11.2017 • AustraliaComments Off on Beware the Second Half of the Market Cycle

    Vern Gowdie – Markets and Money (Australia) –

    The weather is seasonal.

    Moods can change.

    Traffic conditions vary.

    Everything it seems is subject to variation and transformation…everything except investment markets.

    Investment analysts and commentators — in the main — always predict a better year a. Even with the US market hitting one record high after another, the thought of a severe correction is never seriously entertained…at least not in public.

    We know markets operate on a cyclical basis. Yet this basic premise is forgotten or dismissed (out of self-interest, arrogance or stupidity) when assessing the future prospects of markets. It is always onwards and upwards. But even a cursory look at market charts shows you this is not the case.

    Unfortunately, the higher (or lower) a market goes, the greater the expectation for the continuation of that trend.

    Over the long term, to survive and prosper in the business of investing, you must understand the cyclical nature of markets.

    John Hussman, of Hussman Funds, is one person with a demonstrable record of market cycles.

    In last Friday’s Markets & Money, I included this extract from Hussman’s most recent newsletter:

    “Market valuations, on these measures, presently approach or exceed the 1929 and 2000 extremes, placing U.S. equity market valuations at the most offensive levels in history. Indeed, with median valuations on these measures now more than 2.7 times their historical norms, there is strong reason to expect a market loss on the order of -63% over the completion of the current market cycle…”

    The most offensive valuation levels in history are expected to deliver a market loss of 63%.’

    John Hussman has an excellent track record in picking market tops.

    Another US firm that has an equally impressive record is GMO.

    GMO has long been making seven-year forecasts — for a number of asset classes — with an uncanny level of accuracy.

    The following table is the firm’s latest forecast for expected returns over the next seven years.

    Source: CMG
    [Click to enlarge]

    GMO predicts investors with exposure to large cap stocks in the US face the prospect of losing — on average — 4.1% every year for the next seven years.

    If GMO’s forecast is reasonably accurate, then, in dollar terms, that means $100,000 today will be worth $74,500 in 2024.

    GMO does not use a crystal ball to arrive at these numbers. It’s a simple matter of reversion to the mean.

    Markets have been functioning — through good times and bad — for nearly 150 years.

    There’s a whole of data available on the mathematics behind the human emotions that drive markets to extremes — in both directions.

    Eventually we calm down and rational thinking restores some order to market thinking and pricing — this is the mean.

    The fact that GMO calculates it’ll take a period of sustained losses to restore balance is an indication of the euphoria that exists in the US share market.

    Expecting that euphoric pricing to continue indefinitely is sheer lunacy…it never has, and it never will.

    Understanding secular markets

    In my book, How Much Bull Can Investors Bear? I devote a whole chapter to the long-term cycles known as ‘secular markets’.

    Understanding the long-term patterns that influence market pricing can assist you in deciding whether to over- or under-weight your exposure to the share market.

    This is an edited extract from a chapter titled: ‘Secular Markets — An Inconvenient Truth’:

    Even if you’re not the investing type, you should be familiar with “bull” and “bear” markets.

    The mental image created is a bull raging a, while the bear claws the market down.

    But very few people, even those in the investment industry, are familiar with, or admit to knowing about, the terms Secular Bull and Secular Bear markets.

    In my 30 years in the investment business, I’ve never heard or seen these terms mentioned in any industry presentation or research.

    We know from share market charts that, over the very long term (100-plus years), the market’s positive (bullish) periods have certainly outweighed the negative (bearish) ones.

    Progress has been made with a pattern of “two steps forward and one step back”. The very long 100-year term trend is why there’s no disputing the statement: “In the long term shares go up”.

    There is just one small problem with this established belief — investors don’t have 100-year timeframes. The majority of people have investment horizons that stretch between 20 to 40 years. Therefore, if you happen to be in the “one step back” period of the market’s progressive dance, it’s unlikely you are going to experience any significant uplift from the share market.

    When viewed over a 20- to 40-year timeframe, the share market is not always the clear winner you are led to believe it is.

    This is an inconvenient fact the investment industry is either ignorant of, or chooses to ignore.

    The investment industry’s relevance is heavily tied to the fortunes of the share market. Therefore, all marketing efforts are built around reinforcing the belief that, in the long term, shares go up. Selective data is used to validate the marketing message. It’s this “cherry picked” data that enables the industry to perpetuate the myth.

    The following graphs show you how the promoters can manipulate the message.

    The first graph is the movement of the Australian share market (All Ordinaries index) from 1983 to September 2011. This graph, like the CommSec graph in Chapter One, shows the market’s 15-fold increase over a 25-year period.

    The trajectory wasn’t always smooth. The investment industry uses the bumps in the road — 1987 crash, mid-1990s Asian crisis, and 2000 “tech wreck” — to highlight the resilience of the share market, and to add credence to their claim of the share market always recovering to post new highs.

    To the average investor, this certainly appears to validate and reinforce the belief that, in the long term, markets go up.

    Source: sharelynx.com
    [Click to open in new window]

    The second chart (below) is an extended version of the above chart.

    The difference is the next chart goes back to 1970. You can see the 13-year period prior to 1983 was a vastly different experience for share market investors. There was no 15-fold increase; in fact, there was barely any increase at all.

    This rather dire period in the market’s history is conveniently airbrushed out of the industry’s marketing efforts. Every share market graph I’ve seen from the industry starts in the early 1980s.

    Source: sharelynx.com
    [Click to enlarge]

    These two distinct periods in the history of the share market are known as Secular Bear and Secular Bull markets.

    Secular is another way of saying “long-term trend”.

    For example, if we look at the 1982–2007 period, there’s a clear long-term rising trend — known as a Secular Bull market.

    Falling inflation rates, rising levels of debt-fuelled consumption, falling interest rates, baby boomers’ consumption, low oil prices and the introduction of technology all drove this trend of higher share prices.

    However, the rising trend was not without its hiccups. There were short-term bear markets — the most notable setbacks being the 1987 “crash” and the 2000 “tech wreck”.

    In broad terms, the All Ords’ progress during the Secular Bull market can be best described as “three steps forward and one step back”.

    A close inspection of the 1970–82 Secular Bear market (the Secular Bear market actually commenced in the late 1960s) shows the market also had times when it moved in an upward (bullish) trend, only to surrender those temporary gains to the negative trend.

    Unlike the progressive dance of the Secular Bull market, the Secular Bear market’s movement is more regressive — “one step back, one step forward and one step back”.

    No real positive momentum is achieved.

    In the midst of a long-term cycle, it’s easy to forget that nothing lasts forever.

    The warning signals are being sounded on this extended period of excess and manipulation.

    We’re on the cusp of a seasonal change in market conditions…clear blue sunny skies are going to give way to a very long and very bleak winter.

    To find out how to protect your capital from this coming change in the investment climate, please go here.

    Regards,

    Vern Gowdie,

    Editor, The Gowdie Letter

    -Read more at www.marketsandmoney.com.au-

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