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Old 12-06-2018, 05:08 AM
Danny B Danny B is offline
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Join Date: Oct 2012
Location: L.A. Ca.
Posts: 4,848
The speed-bumps are getting taller

2 articles, one from a wanker, one from a genius.
"Long-term readers of the Absolute Return Letter will know that I always distinguish between short-term debt cycles and debt super-cycles. Short-term debt cycles move more or less in parallel with the underlying economic cycles and last on average 7-8 years – in line with the average length of economic cycles.
Debt super-cycles are a different kettle of fish. They typically last 50-75 years"
"The growth in debt-to-GDP implies that little of the fancy stuff that have enriched our livelihoods in the last 30-40 years has actually paid for itself. Instead, it has been financed by under-investing, driving productivity growth lower and debt-to-GDP higher. Global under-investments in the past half century amount to no less than $400 trillion "
Maybe we should stop spending on wars.

"Here in the UK, an obvious way to default would be for the government to renege on its pension obligations. Total unfunded UK pension liabilities are about £11 trillion with the majority being the government’s. £11 trillion is more than 5 times UK GDP. Does that money exist? No, and the UK pension model will definitely have to be revamped at some point."
We can't reduce war spending

"Wealth-to-GDP is long-term stable and, as you can see in Exhibit 4 below, the US long-term mean value is around 380%; i.e. total US household wealth is on average about 3.8 times US GDP. The mean value varies somewhat from country to country, but it is long-term stable everywhere. Think of the ratio as a measure of capital efficiency"
"Wealth simply cannot outgrow GDP (or vice versa) in the long run. The two must grow hand-in-hand longer term. I have seen US data going back about 150 years, and every time wealth-to-GDP has deviated meaningfully from 380%, it has mean-reverted. Every single time!"

"As you can see from Exhibit 4, US wealth-to-GDP now exceeds 500%; i.e. it must drop 25-30% to re-establish the long-term mean value. That can happen in two ways. Either GDP grows faster than wealth for an extended period of time, or 25-30% of all US household wealth is destroyed."
"The three most important contributors to wealth in society are property, bonds and equities (in that order)."
Feces-for-brains doesn't list a single thing that produces tangible wealth
"but the fact that populism is on the rise worldwide does worry me. What is that going to lead to?"
We can't possibly have the creators of tangible wealth actually receiving the benefits.
"For now, my favourite to mark the end of this debt super-cycle is a complete meltdown - and subsequent revamp - of the defined benefit (“DB”) pension system,"
"The problem is quite simple. In many countries around the world, large amounts of pension savings are still managed per the DB model; i.e. the risk is still overwhelmingly the employers’ (including the government). With falling interest rates and risk assets only delivering modestly positive returns, particularly outside the US, liabilities have grown much faster than assets in many pension funds in recent years."
The rescue of the banks is what killed the pension plans.

“Either we all take a haircut and convert to defined contribution plans [aka DC plans where the risk is transferred to plan members], or our country will go bankrupt, and you will get nothing at all. Which of the two outcomes would you prefer?”

Now for the genius;
"Of all the delusions that have infected the minds of economists, central bankers, and the investing public in recent years, perhaps none is as short-sighted and pernicious as the idea that aggressively low interest rates are “good” for the economy and the financial markets.

There is, of course, a certain truth to that idea, roughly equivalent to proposing that snorting amphetamine-laced cocaine is “good” for one’s energy"
"Back in 2003, Alan Greenspan mixed the soap of what would become the housing bubble by holding interest rates to just 1%. Investors responded to the uncomfortably low yields on Treasury bills by looking for alternatives that offered a seemingly safe “pickup” in yield. They found that alternative in mortgage securities. Wall Street was more than happy to satisfy the demand for more “product,” as they called it, by creating more mortgage bonds. But see, creating a mortgage bond requires you to actually make a mortgage loan to someone, which is how we got zero-down, no-doc, interest-only loans. "

"In my 2003 piece outlining that developing bubble, I began, “T.S. Eliot once wrote ‘Only those who risk going too far can possibly find out how far one can go.’ It seems that the U.S. financial system is bound and determined to find out… the real question is this: why is anybody willing to hold this low interest rate paper if the borrowers issuing it are so vulnerable to default risk? That’s the secret. The borrowers don’t actually issue it directly. Instead, much of the worst credit risk in the U.S. financial system is actually swapped into instruments that end up being partially backed by the U.S. government. These are held by investors precisely because they piggyback on the good faith and credit of Uncle Sam.”"
About that upcoming sovereign bond default,,,

"In the Federal Reserve’s attempt to bring the U.S. out of the crisis of its own making, the Fed has produced conditions that make another collapse inevitable. Unfortunately, the scale of the present bubble is far grander, and the consequences are likely to be more severe. By the completion of this cycle, I continue to expect the S&P 500 to lose roughly two-thirds of the market capitalization it reached at its September 20 peak. Mountains of covenant-lite debt and leveraged loans, this cycle’s version of “sub-prime” mortgages, will go into default."

"so my sense is that a major price collapse like 2000-2002 and 2007-2009 is the most likely way this bubble will be resolved. Meanwhile, it’s worth noting that it would not even take a decline to historically run-of-the-mill valuations to wipe out every bit of S&P 500 total return that the index has enjoyed since 2000."
"quantitative easing and zero interest rates have not been “good” except in the myopic sense of encouraging a short-term burst of very bad choices and misallocations of capital."
"With the total capitalization of U.S. corporate equities recently pushing $40 trillion, I continue to expect that $20 trillion or more of what investors count as “wealth” will vanish over the completion of this cycle."

FRED, 96 million Americans are not in the labor force.
"That leaves cyclical growth as the only remaining component. Yet with the U.S. unemployment rate already down to 3.7%, the likelihood of substantial further declines is limited. Even pushing the unemployment rate down to 1% over the coming 4 year period would add just 0.7% annually to economic growth."
Everybody keeps harping on the unemployment rate as if it were a gold-plated enumeration of all the people not being productive.,

The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.

"I’ve regularly argued elsewhere that the “Phillips Curve” is actually properly viewed as a relationship between unemployment and real wage inflation, but it bears repeating that there is no meaningful relationship between general price inflation and unemployment, nor will you find a strong, reliable relationship between inflation and government debt, the outstanding quantity of base money, the output gap, or virtually anything else."
How can he be smart and stupid at the same time?
Both these articles have some good information,,, and some ripe BS also.

Armstrong, "Today, governments wage war more often for the private benefit of select groups rather than the state. The invasion of Iraq made billionaires out of Cheney’s friends and left the American people with endless trillions in debt that will last collecting interest to constantly roll indefinitely until the crash and burn."
Everybody in the financial community has worked hard to transfer all risk to the state.

Armstrong, "f we throw in all the economic problems we see coming with pensions and a monetary crisis on top of all of that, I would not count on 2020 being a normal presidential election. It may be the most violent event in American political history. The last major riots during a presidential election were August 1968 at the Democratic National Convention – 1968.652. If we add 51.6 years we arrive right on schedule – 2020.252. So get ready. 2020 is not going to be very civilized"

More bumps in the road.
12/06 Market sell-off set to continue as Dow futures get hit – CNBC
12/06 Global sell-off hits Asia as Hong Kong stocks drop 2% – CNBC
12/06 The market doesn’t care how “fantastic” your stocks are – Real Investment Advice
12/06 Illinois’ other debt disaster: $73 billion unfunded retiree health benefits – Wirepoints
12/06 A flattening yield curve has investors spooked – what happens next – CNBC
12/06 Competition Is dying as the biggest corporations gobble up everything – EOTAD
12/06 Multi-strategy hedge funds suffer “one of worst months ever” – ZH
12/06 Citi warns Q4 market revenue will unexpectedly shrink from last year – ZH

12/05 An eye-scanning lie dectector is forging a dystopian future – Wired
Use it on the politicians.

Stock Market Crash: The Dow Has Fallen Nearly 2,500 Points And FAANG Stocks Have Lost A TRILLION Dollars In Value
Predictions from Saxo Bank.
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