There was so much excitement generated last week over Elon Musk's hyperloop idea, that the world almost forgot that California already has a high-speed rail project in place. A very, very expensive project. And the problem with that particular $68 billion project, which is just as unrealistic, just as unprofitable, and just as hyper-pipedreamy, is that as the SacBee reports, is that it is on the verge of being shut down now that over 5 years since its launch someone actually did the math and found out that, oops, there is no money!
While hardly news to frequent visitors, especially those who recall the following list, anyone who needs a 7 minute refresher into why the US middle class is on collision course with extinction is urged to watch the following brief video which highlights all the salient facts such as:
- 76% of Americans live paycheck to paycheck
- 27% of American have no savings at all
- 46% of Americans have less than $800 in savings
- The conversion of America into a part-time working society and the country's second largest employer - a temp agency.
- The college trap and the student loan bubble
- And of course, foodstamps, foodstamps, foodstamps and the nearly 50 million poverty-level Americans who need them to survive
Why seven minutes? Because everyone knows that just like you can't get "six minute abs", so it is impossible to recap the doom of America's middle class in only six minutes (or, gasp, less).
Millions of Millennials (born 1982-2004) are pursuing high-cost university educations in the belief that multiple degrees are now essential to being offered a job. Even as evidence piles up that the economy has changed in fundamental ways such that even advanced degrees no longer inoculate the owner against financial insecurity, millions of young people feel they have no choice but to indebt themselves and spend scarce family resources on a questionable-value education. The underlying assumption here is the present will endure, and change will be marginal. The idea that the narrative of history suggests major disruptions of the status quo are cyclical and thus inevitable doesn't register. In this case, the fantasy is that the status quo won't change dramatically, even as it already has changed dramatically.
In lieu of the Japanese government doing the right thing and finally coming clean about the epic environmental catastrophe that is Fukushima, which it hopes to simply dig under the rug even as the inconvenient reality gets worse and thousands of tons of radioactive water make their way into the ocean, one is forced to rely on third-party sources for information on this tragedy. We present a useful primer from Scientific American on Fukushima "water retention" problem and "what you need to know about the radioactive water leaking from Japan’s Fukushima nuclear plant into the Pacific Ocean."
Want to throw the world into sheer panic and outright chaos? Then just take out Google. At least that is what a brief five minute outage of the world's favorite search engine on Friday night shows, when after all of Google's services were hit with unprecedented downtime from 3:52 pm until 3:57 pm Pacific Dauylight Time, some 40% of global internet traffic was lobbed off. According to Topsy analytics, tweets per minute skyrocketed around the point that Google went black, from an average of 200 tweets per minute about Google to more than 1,000. "For five freakin' minutes!" one Twitter user complained. Another wrote, "Google was down for five minutes… Is it a sign that the END OF THE WORLD has started?"
The latest default bull argument supporting higher levels of growth in China than I believe possible is the urbanization argument. Beijing is planning another major urbanization push, and according to this argument China can resolve the problem of wasted investment by investing in the urbanization process, that is it can engage in a massive investment program related to the need to build infrastructure for all the newly urbanized. Like so many of the earlier bull arguments, however, this new belief that urbanization is the answer to China’s growth slowdown is based on at least one fallacy and probably more - urbanization accommodates, it doesn‘t cause, growth. It is not the act of building all this stuff that creates wealth or real, long-term growth. It is only if building the stuff caused overall productivity to rise by more than the cost of capital and labor employed in building it that a society gets richer.
While bullish talking heads are quick to point out that corporate earnings have never been higher, they tend to get very quiet the second corporate cash flow generation is mentioned. The reason is simple: where non-GAAP earnings, much of which are vaporware such as exclusions and other adjustment involving addbacks for "non-recurring" events such as Cisco's now annual mass termination announcement are indeed at nosebleed levels, actual corporate cash generation is a shadow if its former self which peaked in 2007 and has never been retraced. The problem is that since corporations generate less cash, they also spend less cash. As the following chart confirms, corporate capital use which peaked at a little over $1.8 trillion in 2007 has yet to be surpassed.
The price-to-trend-earnings multiples also raise questions about the Federal Reserve’s long campaign to prop up asset prices through unconventional policies. The “wealth effects” sought by the Fed are mostly bringing forward gains that would have otherwise occurred in the future. They’re weakening tomorrow’s growth in return for a shot in the arm today. Of course, policymakers would like you to believe their actions are stabilizing. But the last two decades suggest otherwise. And the chart above reinforces the risk that we’re stuck in a Groundhog Day-like loop of living through the same boom-bust cycle over and over. It shows that the next policy-induced bust may be gradually coming into view.
Overnight the (pre) civil war in Egypt took a turn for the worse when the local military conducted the political and religious equivalent of shooting inside a hornets' nest, or rather at the al-Fatah mosque off Ramses square, where up to a 1000 Muslim Brotherhood supporters of the deposed president had been barricaded. Subsequently, security forces rounded up protesters inside and forcefully dragged them out. As the Telegraph videos below suggest, the sound of gunfire could be heard in the background. Egypt's official news agency MENA reported that gunmen opened fire on security forces from the mosque's minaret. Local television stations broadcast live footage of soldiers firing assault rifles at the minaret. It goes without saying that firing on religious protesters inside a sanctum of a mosque will hardly derail the country's flaming train ride straight into civil war, but it also begs the question: why is Egypt so intent on culminating with a civil war, split along religious lines, that will be the bloodiest in decades, involve over 80 million people and is sure to lead to unprecedented death and destruction. Cui bono, aside from the Fed's balance sheet, of course?
We can waste readers' time with the latest revelations about the NSA's espionage activities against Americans, highlighted fully in the following WaPo article "NSA broke privacy rules thousands of times per year, audit finds" whose title is sufficiently self-explanatory about how seriously the administration takes individual privacy, or we can just showcase the following cartoon which shows how the Miranda rights have been 'adjusted' for the New Normal...
That China faces a number of serious economic (and potentially social) problems is no surprise and as Guggenheim's Scott Minerd notes, trying to predict when persistent structural problems will lead to a shock for markets is extremely difficult (as we noted here). However, from a symbiotic collapse in the previously 'virtuous' bond-market-to-banking-system relationship, to the drying up of easy credit for all but the largest (and least over-capacity) firms, it appears that China's private sector leverage has crossed the tipping point that signalled crises in the US, UK, Japan and South Korea. Although the recent data (believe it or not) show signs of a stabilization in the Chinese economy, the elevated debt burden should continue to cast doubt over its growth sustainability and the "childish" and non-transparent nature of China's bond market offers little or no hope for a free market solution.
After 2000 years, why do we not know which economic theory is correct: Keynesian, Marxism, or Hayek-Friedman? Surely, there is a demonstrably, statistically correct answer. It appears not. Then why do we have cargo-cult faiths (Keynesianism) instead of demonstrably correct models of economic behavior.