ETC

The Five Stages Of A Sovereign's Life-Cycle

Bridgewater's Ray Dalio believes four factors drive relative economic growth: competitiveness, indebtedness, culture, and luck. The returns from his machine-like investment process clearly indicate he is on to something as he notes that the most powerful influences of this relative income (and power) are 1) the psychology that drives people’s desires to work, borrow and consume and 2) war (which we measure in the “luck” gauge). Throughout history, Dalio advises these two influences have changed countries’ competitiveness and indebtedness which have caused changes in their relative wealth and power. He goes on to add that since different experiences lead to different psychological biases that lead to different experiences, etc., certain common cause-effect linkages drive the typical cycle of a nation's growth, power and influence - and that countries typically evolve through five stages of that cycle.

Guest Post: The Smartest Investment Of The Decade

Here’s something crazy to think about. Roughly 200,000 people were born today. That’s net world population growth, births minus deaths. Each one of them constitutes a new mouth to feed. And when they come of age, those 200,000 people will consume, conservatively, about 1,250 Calories per day. Collectively, that’s 91.25 billion Calories per year for the entire 200,000 people that were born today. Where will they get that food from?  Increasing demand. Tightening supply. Destructive policy. All of these point to a long-term trend in food. And the trend is enormous. The best case scenario is steep food prices. The worst case scenario is severe shortages. This makes agriculture probably THE place to be over the next ten years. Like owning physical gold, farmland gives you not only the financial upside of rising agricultural prices, but also the personal assurance of a guaranteed food supply.

Gold And The Potential Dollar Endgame Part 1

Economists the world over can take comfort that the laws of supply and demand still largely rule the marketplace. However, we believe there is a noted exception for a yellow, largely useless metal. A metal that just happens to have shaped the world’s monetary systems for the last several thousand years. Gold’s “supply” traditionally defined as global mining production is virtually meaningless in determining its’ price. How can this be? Gold, even when viewed as a commodity, is unique in that it is not consumed. Rather than supply in the traditional sense, what drives the gold price is the percentage of the existing stock (170,000 tons) that is available for sale on any given day. Gold, in our opinion is what is often referred to as a Giffen good. We believe that a massive revaluation of gold denominated in dollars can happen quite suddenly, almost overnight. But not because of any sustained long term demand for gold, but simply because owners of metal simply withdraw it from sale, sending the stock to flow ratio to infinity. This is why understanding gold’s stock to flow ratio is so vital. What happens to the “price” of gold when it ceases bidding for dollars? Zero. Or infinity. Take your pick.

Guest Post: Do We Have What It Takes To Get From Here To There? Part 2: China

Does China have what it takes to get from here (industrialized export economy) to there (sustainable growth, widespread prosperity)? The same can be asked of every nation: do they have what it takes to move beyond their current limitations to the next level? Consider corruption. Corruption isn't just a "values" issue: corrupt societies have corrupt economies, and these economies are severely limited by that corruption. A deeply, pervasively corrupt economy cannot get from here to there. Corruption acts as a "tax" on the economy, siphoning money from the productive to the parasitic unproductive Elites skimming the bribes, payoffs, protection money, unofficial "fees," etc. By definition, the money skimmed by corruption reduces the disposable income of households and enterprises, reducing their consumption and investment... Pull aside the curtain and what you find is a China crippled by corruption and debt.

 

Guest Post: What To Do When You've Hit Your Breaking Point

At some point or another, anyone who is even remotely paying attention to reality will likely reach two critical moments of awakening in their lives. The first is what I call the “Aha! moment”. The ‘Aha! moment’ is usually brought about by something you learn or read… When you talk to your friends and family, most of them don’t want to hear about your ideas. They think you’re nuts. They haven’t had their ‘Aha! moment’ yet. Eventually, you learn to keep it all inside. But then, at some point down the road, the second critical moment occurs– the Breaking Point.

Do We Have What It Takes To Get From Here To There? Part 1: Japan

Do we have what it takes to get from here to there? This apparently simple question offers profound insights into the dynamics of individuals, households, enterprises and nation-states. If we answer this question honestly, it establishes a "road map" of what must be in place before a progression from here to a more sustainable future ("there") can take place. For most of the world's economies and societies, the answer is a resounding "no." The U.S. Status Quo is as intellectually bankrupt as it is financially bankrupt. Our "leadership" cluelessly clings to the only model they know: incentivize "consumers" into borrowing more money to buy more "stuff" from China, in the magical-thinking belief this churn will somehow lead to sustainable "growth." This is akin to handing a parched alcoholic a fresh bottle of whiskey to wean him of his addiction. There are more than a few lessons to be learned from Japan...

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30yr UST Auction Preview

Today is the 2nd of the long-end UST auctions for the month of November.  16bln 30yrs will be sold to the market at 1pm...largest single DV01 event of the monthly cycle.  Can we game the US Govt??

Guest Post: What An Obama Victory Means For The Middle East

Memo to the Arab World: Good news and bad news with the re-election of Barack Obama to the White House. The good news is that a victory by the Republican candidate Mitt Romney would have given Israel and its current leadership a free hand at continuing a policy of arrogance that will lead the region towards greater mayhem. On the other hand, with Obama in the Oval Office, don’t expect anything drastically different to happen in the Middle East in so far as US involvement goes. And if Obama’s acceptance speech is anything to judge by, where his only mention of anything related to foreign affairs was a reference to "freeing ourselves from foreign oil," it seems obvious that the Obama administration will want to focus on solving domestic issues. At the end of the day these are issues that matters most to the average American who would rather not have to worry about the Middle East and terrorism – that is until they come knocking at our doors as they did on September 11, 2001.

Guest Post: Time To Focus On 'Return Of Capital'

The U.S. Presidential race is now behind us. And this morning the world woke up and realized that all the issues the election postponed now lie before us. It's becoming increasingly clear the way our leaders will "address" these challenges will be to throw increasing gobs of our citizens' current and future wealth at them. Until, of course, that simply doesn't work anymore...

Guest Post: Obama Wins A Second Term: Now What?

We are programed to cheer and act out our sheep-like roles in partisan politics when, like the game, unless we have money bet on the outcome the actual winner will have absolutely no impact on our lives. The bottom line is that voting percentages generate credibility for the failed American political system. "There's not a dime's worth of difference between the Democrat and Republican parties." George Wallace, 1966 Alabama governor and presidential candidate. Romney lost for two main reasons: First, as he correctly noted during the campaign, 47 percent of American families are dependent on government handouts and they voted for what was in their own best interests; and second, the GOP leadership antagonized the 10 percent of the Republican Party electorate who supported Ron Paul for President. And so over the next four years the people will be provoked and buy more guns they will never have the courage to use to defend themselves against an all-powerful government. The game will go on until the time is up for our nation. It is time we as a generation man up for liberty to redeem ourselves in the tear-filled eyes of future generations. The American people must work peacefully to restore the Articles of Confederation now or else suffer the permanent consequences of the fall of America.

It Doesn't Matter

It’s really hard to ignore what’s happening today; the election phenomenon is global. The entire world seems fixated on this belief that it actually matters who becomes the President of the United States anymore... or that one of these two guys is going to ‘fix’ things. Fact is, it doesn’t matter. Not one bit. And we’ll show you why mathematically... This is not a political problem, it’s a mathematical one. Facts are facts, no matter how uncomfortable they may be. Today’s election is merely a choice of who is going to captain the sinking Titanic.

The Far More Important 'Election' Part 2: China's Market Implications

Having made clear in Part 1 the various policy leanings, uncertainty, and potential reform headlines, we delve a little deeper into the specifics of what the systemic and idiosyncratic implications might be. In two simple tables, Goldman lays out the top-down asset-class perspectives as 'new' China addresses its systemic issues and then looks at how China's equities (and by implication global equity indices) can meaningfully re-rate with a background of economic sustainability concerns as reforms impact various sectors more or less. As Goldman concludes: "Cyclical adjustments can help to restore confidence, but investors will likely be unwilling to meaningfully re-rate the market until more concrete progress is made on the reform front…but reforms may not be good for all sectors."

European Rumblings Return As ECB Integrity Questioned

As we warned here first, and as the sellside crew finally caught on, while the key macro event this week is the US presidential election, the one most "under the radar" catalyst will take place in Greece (currently on strike for the next 48 hours, or, "as usual") on Wednesday, when a vote to pass the latest round of Troika mandated austerity (too bad there is no vote to cut corruption and to actually collect taxes) takes place even as the government coalition has now torn, and there is a high probability the ruling coalition may not have the required majority to pass the vote, which would send Greece into limbo, and move up right back from the naive concept of Grimbo and right back into Grexit. Which is why the market's attention is slowly shifting to Europe once more, and perhaps not at the best time, as news out of the old continent was anything but good: Spain's October jobless claims rose by 128,242, higher than the estimated 110,000 and the biggest jump in 9 months, bringing the total number of unemployed to 4,833,521, a rise of 2.7%, according to official statistics released Monday. This means broad Spanish unemployment is now well above 25%.  In the UK, the Services PMI plunged from 52.2 to 50.6, which was the lowest print in nearly two years or since December 2010, and proved that the Olympics-driven bump of the past few months is not only over, but the vicious snapback has begun.