Archive - Feb 2014

The American people are the most drugged people in the history of the planet.  Illegal drugs get most of the headlines, but the truth is that the number of Americans that are addicted to legal drugs is far greater than the number of Americans that are addicted to illegal drugs.  As you will see below, close to 70 percent of all Americans are currently on at least one prescription drug.  In addition, there are 60 million Americans that “abuse alcohol” and 22 million Americans that use illegal drugs.  What that means is that almost everyone that you meet is going to be on something.  That sounds absolutely crazy but it is true.  If it seems like most people cannot think clearly these days, it is because they can’t.   And considering the fact that big corporations are making tens of billions of dollars peddling their drugs to the rest of us, don’t expect things to change any time soon.

Renowned behavioral economist Dan Ariely explains why humans are biologically wired to make irrational decisions when money is involved. It's a case of our evolutionary wiring interfering with the decisions we face in a modern world very different from the one our ancestors adapted to. For instance, he explains how one of the easiest phenomena to create in a lab are valuation "bubbles". Our vestigial herding instinct encourages us to imitate the actions of those around us (e.g. bidding for a particular asset), which then strengthens that signal for others (leading to even higher bidding), resulting in behavior not justified by the underlying fundamentals of reality (asset prices destined to crash)... " I do think that we need a new generation of bankers. I think you cannot take the old generation of bankers and rehabilitate them. Recent history is not showing us that this is something we should hope for. But there is a real question of, How do we create a new generation of bankers that are going to think of themselves as the caretakers of society, rather than the rapists?"

"It's really a crisis situation," exclaims one California city manager, "and it's going to get worse in time if this drought doesn't alleviate." For the state that produces one-third of the nation's fruits and vegetables, the driest spell in 500 years has prompted President Obama to make $100 million in livestock-disaster aid available within 60 days to help the state rebound from what he describes is " going to be a very challenging situation this year... and potentially some time to come." As NBC reports, Governor Jerry Brown believes the "unprecedented emergency" could cost $2.8 billion in job income and $11 billion in state revenues - and as one farmer noted "we can't recapture that." Dismal recollections of the 1930's Dust Bowl are often discussed as workers (and employers) are "packing their bags and leaving town..." leaving regions to "run the risk of becoming desolate ghost towns as local governments and businesses collapse."

Not quite what you thought it would be? Have no fear. The following will make it all clear...

The global crisis that began in 2007/8 has unmasked many unsustainable economic dispositions. Unfortunately, the proper conclusions have still not been arrived at, as evidenced by the fact that the same old Keynesian recipes that have failed over and over again are being implemented on an even grander scale. One must not be misled by the claims of 'austerity' being imposed, as this has evidently little bearing on government spending as such, but is rather an attempt to squeeze more blood out of an already shriveled turnip, namely what remains of the private sector. Puerto Rico seems – at least so far – not any different in that respect.

"It is unbelievable how bullish [investors] have become."

"We expect another deflationary episode leading to systemic risks and economic disappointments. Hence, it is time to structure portfolios much more conservatively and put capital preservation ahead of aggressive return strategies. In contrast to last year, 2014 will hardly be a year with a powerful and easy trend to ride. Instead, it will bring much more volatility."

"It may take a few more months until the dimension of risk in the credit system become more visible, but I expect this to be on the table in the second half at the latest, when the price of gold should be higher again."

"Well, of course, Kore­ma­tsu was wrong. And I think we have repudiated in a later case. But you are kidding yourself if you think the same thing will not happen again."

Hint: it's neither the Fed nor the Bank of Japan...

The curse of the over-bearish (or over-bullish) magazine cover is well known. Of course, the media will only cherry-pick the "lows" as an indication that it's time to buy; as opposed to the exuberance-exhibiting article writers and their glaring headlines. To wit, this week's Barron's cover proclaims "GOOD NEWS - The US economy could grow this year at 4%... Forget the snow, consumers and businesses are ready to spend." Hhmm, it seems that Barron's forgot to look at the data...

In the Garden of Fleece'em... 

It's not that the US has a scarcity of bizarre everyday stories - it does not. It is just that sometimes you encounter something so surreal, warped and ridiculous, that even the stock "market" makes sense by comparison. Such as this.

Today’s economic model was best summed up by dictator Benito Mussolini in one short sentence: “Fascism … is the perfect merger of power between the corporations and the state”.   But tyranny also has its life-cycle within the balance between the past and the future.  Once the past becomes far too much of a millstone for the future generations to carry any longer, governments fall and debt and servitude recede.   Empires can fall largely without violence and allow a new, freer system to emerge, as most of the satellite states of the Soviet Union achieved.   Or the legacy of fallen empire becomes violent chaos followed by renewed oppression, like the French Revolution. This bottom-up style revolution is happening to nations across our 21st Century.  The future lies in the balance.  The bell tolls for all Western nations, too. So, in the United States, it seems, liberty will have its chance again before too long.

While US organized labor has been in a state of steady decline for several generations, never had it suffered as crushing a blow as it did last night, when in a 712 to 626 vote, Volkswagen's hourly workers in Chattanooga, TN, rejected joining the United Auto Workers labor union. What makes the defeat even more bitter is that a win would have marked the first time the union has been able to organize a foreign-owned auto plant in a Southern U.S. state, and would have been particularly meaningful, because the vote was set in a right-to-work state in the South, where anti-union sentiment is strong and all past UAW organizing drives at automobile plants have failed. What is most shocking, however, is that the defeat came even though the UAW had the cooperation of Volkswagen management and the aid of Germany's powerful IG Metall union, and yet it still failed to win a majority among the plants 1,550 hourly workers.  As the WSJ notes, "the defeat raises questions about the future of a union that for years has suffered from declining membership and influence, and almost certainly leaves its president, Bob King, who had vowed to organize at least one foreign auto maker by the time he retires in June, with a tarnished legacy."

They have promised more than they can possibly deliver, so a lot of their promises are going to be broken before we see the end of this current bust that began in 2000. And that outcome of broken promises describes the huge task that we all face. There will be a day of reckoning. There always is when an economy and governments take on more debt than is prudent, and the world is far beyond that point. So everyone needs to plan and prepare for that day of reckoning. We can't predict when it is coming, but we know from monetary history that busts follow booms, and more to the point, that currencies collapse when governments make promises that they cannot possibly fulfill. Their central banks print the currency the government wants to spend until the currency eventually collapses, which is a key point of The Money Bubble. The world has lost sight of what money  What today is considered to be money is only a money substitute circulating in place of money. J.P. Morgan had it right when in testimony before the US Congress in 1912 he said: "Money is gold, nothing else." Because we have lost sight of this wisdom, a "money bubble" has been created. And it will pop. Bubbles always do.

Really? It's all climate change?