Full Commitment
This week provided additional confirmation that America is fully committed to a program of currency destruction.  Decades of terminal intelligence have gotten us to this special place.  We will have more on this in a moment.  But first some words on being fully committed.

Say hello to the provider of bacon… lots of bacon, in this case. [PT]

We have never gutted a hog.  But we hear it is a bloody mess.  The volume of blood that gushes out – as in, ‘bleeding like a stuck pig’ – is profuse.
Contemplating a bacon and egg breakfast plate reveals two types of commitments.  That of the chicken.  And that of the pig.  You may know this allegory.  The chicken is involved in providing for the breakfast.  It provides the eggs.

Prophet of Doom
In 1976, economist Herbert Stein, father of Ben Stein, the economics professor in Ferris Bueller’s Day Off, observed that U.S. government debt was on an unsustainable trajectory.  He, thus, established Stein’s Law:

“If something cannot go on forever, it will stop.”

Herbert Stein, looking worried about the budget deficit. [PT]

Stein may have been right in theory.  Yet the unsustainable trend of U.S. government debt outlasted his life.  Herbert Stein died in 1999, several decades before the crackup.  Those reading this may not be so lucky.
Sometimes the end of the world comes and goes, while some of us are still here.  We believe our present episode of debt, deficits, and state sponsored economic destruction, is one of

Consumption without Production
“Every man is a consumer, and ought to be a producer”, observed 19th century philosopher Ralph Waldo Emerson.  “He is by constitution expensive, and needs to be rich.”

Ralph Waldo Emerson (May 25, 1803 – April 27, 1882), who inter alia opined on consumers and the need to not only consume, but also produce. The latter activity has recently become even more severely hampered than it already was. And yet, government is spending like a drunken sailor. [PT]

These days Emerson’s critical insight is being taken to its extreme.  Consumers, many whom lost their jobs due to government lockdown orders, no longer produce.  Yet they still consume.  They are expensive.  Not rich.
What’s more, this consumption is not

Lockdown Disaster
It has been a rough go for California Governor Gavin Newsom. Late last week it was revealed that the state Department of Public Health had tickled the poodle on its COVID-19 record keeping. Somehow the bureaucrats in Sacramento under-counted new corona-virus cases by as many as 300,000.

Governor Newsom gesticulating his way through the pandemic…  [PT]

Perhaps this oversight prompted Newsom to imbibe a little meditation and reflection.  At his Wednesday corona-virus news conference, shortly after quoting Voltaire, Newsom offered the following epiphany:

“Businesses can’t thrive in a world that’s failing.”

Often the simplest insights into reality are the most essential. We will give Newsom that. Yet, this is hardly an

Insulting the Captive Audience
This week, while perusing the Federal Reserve’s balance sheet figures, we came across a rather curious note.  We don’t know how long the Fed’s had this note posted to its website.  But we can’t recall ever seeing it.  The note reads as follows:

“The Federal Reserve’s balance sheet has expanded and contracted over time.  During the 2007-08 financial crisis and subsequent recession, total assets increased significantly from $870 billion in August 2007 to $4.5 trillion in early 2015.  Then, reflecting the FOMC’s balance sheet normalization program that took place between October 2017 and August 2019, total assets declined to under $3.8 trillion.  Beginning in September 2019, total assets started to increase.”

A Really Neat Bridge
 

But, Mousie, thou art no thy-lane,In proving foresight may be vain;The best-laid schemes o’ mice an’ menGang aft agley,An’ lea’e us nought but grief an’ pain,For promis’d joy!
– Robert Burns, To a Mouse, on Turning Her Up in Her Nest With the Plough (in extract), 1785

Installation of the final cable support pipes on the Gerald Desmond bridge replacement. Here is a drone video of the project. [PT]
Photo by Scott Varley

The grand plans of our local officials in Long Beach have been foiled by the corona-virus bug.  After seven years of construction, at a cost of $1.5 billion, they can’t even hold a proper ribbon-cutting.
The special occasion is the grand opening of the new, yet to be named, Gerald Desmond Bridge

Coming and Going Like a Wildfire
Second quarter 2020 came and went like a California wildfire.  The economic devastation caused by the government lock-downs was swift, the destruction immense, and the damage lasting.  But, nonetheless, in Q2, the major U.S. stock market indices rallied at a record pace.

The Nasdaq 100 (NDX), daily – the strongest of the major US stock indexes. Since its 2019 low it has roughly doubled. Needless to say, neither the economy nor corporate profits are twice as good as they were in 2019. [PT]

The Dow booked its best quarter in 33 years.  The S&P 500 posted its best performance since 1998.  And the NASDAQ had its biggest increase since 1999… jumping 38.85 percent in just three months.
The economy, on the

Post Hoc Fallacy
On Tuesday, at the precise moment Federal Reserve Chairman Jay Powell commenced delivering his semiannual monetary policy report to the House Financial Services Committee, something unpleasant happened. The Dow Jones Industrial Average (DJIA) didn’t go up. Rather, it went down.

The Fed chair and His Magnificence, God Emperor, Field Marshall & Stable Genius, POTUS Donald J. Trump: a complicated relationship. [PT]

Were the DJIA operating within the framework of a free capital market it would be normal for the index to go both up and down. But remember, the U.S. stock market is hardly a free market.  Not when it is under the influence of extreme Fed intervention.
When the Fed speaks, the DJIA should go up. At least, that

Historic Misjudgments in Hindsight
Viewing the past through the lens of history is unfair to the participants.  Missteps are too obvious.  Failures are too abundant.  Vanities are too absurd.  The benefit of hindsight often renders the participants mere imbeciles on parade.

The moment Custer realized things were not going exactly as planned. [PT]

Was George Armstrong Custer really just an arrogant Lieutenant Colonel who led his men to massacre at Little Bighorn?  Maybe.  Especially when Sitting Bull, Crazy Horse, and numbers estimated to be over ten times his cavalry appeared across the river.
Were George Donner and his brother Jacob naïve fools when they led their traveling party into the Sierra Nevada in late fall?  Perhaps.

Trepidation Nation
This week, while you were busy working, Jamie Dimon, CEO of JP Morgan Chase, took time out from rubbing elbows with fellow movers and shakers at the World Economic Forum in Davos, Switzerland, to share his trepidations:

“The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yield and stuff like that…  I think it’s very hard for central banks to forever make up for bad policy elsewhere, that puts them in a trap.  We’re a little bit in that trap today with rates so low around the world.”

Jamie Dimon having nightmares in his money bunker [PT]

Fair enough.  Though Dimon, in what we presume was an inadvertent omission, failed to share that his

Involuntary Early Retirement of a Middle Eastern General
The procession of news through the week – namely that chronicling the aftermath of the targeted drone strike and killing of Iranian General Qasem Soleimani – advanced with an agreeable flow.  The reports at the start of the week were that Orange Man Bad had spun up a Middle Eastern mob of whirling dervishes beyond recall. World War III was imminent.

The recently expired general, when he was still among the quick – and seemingly in a good mood.  [PT]
Photo via harpy.ir

But after Iran’s token missile launch on Tuesday, with no American causalities, President Trump Tweeted: “All is well!”  Then, on Wednesday, major U.S. stock indices gave the “all clear” signal.  By Thursday, the

Fiat Currency Rankings – From Bad to Worse
Today, as we step into the New Year, we reach down to turn over a new leaf.  We want to make a fresh start.  We want to leave 2019’s bugaboos behind. But, alas, lying beneath the fallen leaf, like rotting food waste, is last year’s fake money.  We can’t escape it.  But we refuse to believe in its permanence.

This is what “monetary stability in the Fed-administered fiat money regime looks like: in the year the Fed was established it took $3.80 to buy what $100 buy today – provided the government’s CPI data are actually a valid gauge of the dollar’s purchasing power. [PT]

Victorian economist William Stanley Jevons, in his 1875 work, Money and the Mechanism of Exchange, stated that money has four

World Class Entertainer in the Cross-Hairs
Christmas is no time to be given the old heave-ho.  This is a time of celebration, redemption, and excess libation.  A time to shop ‘til you drop; the economy depends on it. Don’t get us wrong.  There really is no best time to receive the dreaded pink slip.  But Christmas is the absolute worst.  Has this ever happened to you?

The verdict: Orange man bad! [PT]

Well, believe it or not, this is precisely what House Speaker Nancy Pelosi and her Democrat degenerates in the House did this week with their partisan impeachment of President Trump. Not even Ebenezer Scrooge had a cold enough heart to fire Bob Cratchit on Christmas. In fact, Scrooge gave Cratchit Christmas day off – with pay.
For the

Addicted to Spending
There are many falsehoods being perpetuated these days when it comes to money, financial markets, and the economy. But when you cut the chaff, three related facts remain: Uncle Sam needs your money. He needs a lot of your money. And he needs it bad!

The inescapable logic of tax & spend: empty vault… empty pockets… gimme more! [PT]

According to the Congressional Budget Office, the federal budget deficit for the first two months of fiscal year 2020 is $342 billion. This amounts to $36 billion more than the deficit recorded during the same period last year.  At this rate, Washington is going to add over $1 trillion to the national debt in FY 2020.
Still, the figures from the CBO aren’t all bad.  Revenues in October and

Panem et Circenses
The transfer of wealth from workers and savers to governments and big banks continued this week with Swiss-like precision. The process is both mechanical and subtle. Here in the USA the automated elegance of this ongoing operation receives little attention.

Give them bread and circuses and they will never revolt… so said Juvenal, reportedly [PT]

NFL football. EBT card acceptance at Del Taco. Adam Schiff’s impeachment extravaganza. You name it. Bread and circuses like these – and many others – offer the American populace countless opportunities for chasing the wild goose.
All the while, and with little fanfare, debts pile up like deadwood in Sequoia National Forest.  These debts, both public and private, stand little

The Bubble Machine
The launch angle of the U.S. stock market over the past decade has been steep and relentless. The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent. New highs continue to be reached practically every day.

S&P 500 weekly, since the low of 2009. A party of roaring 20s proportion in terms of duration, extent and end point valuations (a post-war inflation episode triggered a devastating bear market from November 1919 to August 1921, in which the DJIA fell from ~120 to ~64 points. It then rose until early September 1929, topping at ~380 points. By the time it peaked, Wall Street had created all sorts of new-fangled instruments such as the then highly popular investment trusts, everybody

Monetary Lunacy, Nipponese Version
Earlier this month, Bank of Japan (BOJ) Governor Haruhiko Kuroda commented that Japan’s central planners are considering a 50-year government bond issue as a long-term means of putting a floor under super-long interest rates.  How this floor would be placed is extremely suspect; we will have more on this in a moment.  But first, the dual benefits – according to Japan’s central planners…

Kuroda-san: the man with a plan, or rather, a plethora of plans (過剰な計画). [PT]

One, the 50-year government bond would allow the government to lock in cheap long-term funding. Two, it would give yield-starved investors higher returns.  Cheap funding. Higher yield. What’s not to like?
Kuroda, if you didn’t know, is a

Prettifying Toxic Waste
The promise of something for nothing is always an enticing proposition. Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance?  So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?

The yield-chasing hamster wheel… [PT]

Thus, smart fellows go after it; pursuing financial innovation with unyielding devotion.  The underlying philosophy, as we understand it, is that if risk is spread thin enough it magically disappears. In other words, the solution to pollution is dilution.
With this objective, new financial products are fabricated into existence. The risk free rewards of several extra basis points are then packaged up

Beta-driven Fantasy
The decade long bull market run, aside from making everyone ridiculously rich, has opened up a new array of competencies. The proliferation of ETFs, for instance, has precipitated a heyday for the ETF Analyst. So, too, blind faith in data has prompted the rise of Psychic Quants… who see the future by modeling the past.

Gandalf, quant of Middle-Earth, dispensing sage advice. [PT]

For the big financial outfits, optimizing systematic – preprogrammed – delta hedges is an essential aptitude of the 21st century. Our guess is that many of today’s high-fliers will crash and burn during the next bear market. But what do we know?
As far as we can tell, the stock market, circa November 2019, is an absolute fantasy. The Dow

The Sky is Falling

“We believe monetary policy is in a good place.”
– Federal Reserve Chairman Jerome Powell, October 30, 2019.

The man from the good place. “As I was going up the stair, I met a man who wasn’t there. He wasn’t there again today, Oh how I wish he’d go away!” [PT]

Ptolemy I Soter, in his history of the wars of Alexander the Great, related an episode from Alexander’s 334 BC compact with the Celts ‘who dwelt by the Ionian Gulf.’  According to Ptolemy’s account, which survives via quote by Arrian of Nicomedia some 450 years later, when Alexander asked the Celtic envoys what they feared most, they answered:

“We fear no man: there is but one thing that we fear, namely, that the sky should fall on us.”
 
Today, at the risk

Wildfire Surge
The hillsides are always brown in the land of fruits and nuts come autumn.  After baking away all summer long in the hot sun, the dense sage and chaparral covering the coastal hillsides and canyons are dry and toasty. Though, before conditions get better, they must first get worse.

California is ablaze again… as every year.  [PT]
Photo credit: Noah Berger / AP

High pressure systems form over the high-elevation deserts of the Great Basin, between the Sierra Nevada Mountains and the Rocky Mountains, each fall like clockwork. The pressure builds and forces the air to the south and west. The warm, dry winds of Santa Ana then race towards Southern California where they scorch the earth.
The winds howl from the east, across

Planning on Your Behalf 
Watch out! At this very moment, professional economists of all stripes are making plans on your behalf. They are dreaming and scheming new and innovative ways to spend your money long before you have earned it.

Strange and strangely persistent beliefs… [PT]

While you are busy at the gristmill, grinding away for clients and customers, claims are being laid upon your life.  Your future earnings are being directed to boondoggles galore.  Yet these claims are in addition to everything Washington has already signed you up for.
At last count of the U.S. National Debt, every American citizen’s on the hook for nearly $70,000.  Add U.S. Unfunded Liabilities – which includes Social Security, Medicare Parts A, B, and D,

Under the Influence
 
“This feels very sustainable.” 
– Federal Reserve Chairman Jerome Powell, October 8, 2019

Understandable confusion… [PT]

Conflict and contradiction.  These were two of the main themes reverberating around the world of centralized monetary planning this week.
On Tuesday, for instance, a novel and contradictory central banker parlance – “reserve management purposes” – was birthed into existence by Fed Chair Jay Powell.  We will have more on this later on. But first, to best appreciate the contradiction, we must present the conflict.
Free of government intervention, the economy and financial markets would get along within a low standard deviation. Extremes would appear from time to time.  But they would be quickly

21st Century Hooverville
There are places in Los Angeles where, although the sun always shines, they haven’t seen a ray of light in over 100-years.  There’s a half square mile of urban decay centered on the Union Rescue Mission at 545 South San Pedro Street, where depravity, chaos, addiction, insanity and archaic diseases multiply and ricochet about like metastatic cancer.

One of LA’s modern-day Hoovervilles in San Pedro Street…  In 2015 it was reported that Union Rescue Mission CEO Reverend Andy Bales had caught three different bacterial infections from merely walking around in the area. One of the infections rendered him unable to ever walk again (doctors eventually had to amputate his foot, which had fallen prey to flesh-eating

Groping in the Dark
This week central planners pursued their primary mission with steadfast conviction. They planned. They prodded. They prearranged tomorrow to save us from ourselves. Some also grubbed a little graft for their trouble. Other central planners took to debasing the dollar to price fix the federal funds rate within a narrow band of tolerance.  What in the world do they think they are doing?

Central planning committee in the analysis and forecasting phase… [PT]

We know from our own everyday experience that people make choices. What’s more, these choices do not occur in isolation.  There are a myriad of influences and constraints factoring into the countless choices people make as they go about their day.
One person drives

An Odd Combination of Serenity and Panic
The United States, with untroubled ease, continued its approach toward catastrophe this week.  The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement.  Yet, on the surface, all still remained in the superlative.

S&P 500 Index, weekly: serenely perched near all time highs, in permanently high plateau nirvana. [PT]

Stocks smiled down on investors from their perch upon what Irving Fischer once called “a permanently high plateau.”  As of the market close on Thursday, the Dow Jones Industrial Average held above 27,000, the S&P 500 above 3,000, and the NASDAQ above 8,000.  401k accounts, to the delight of working stiffs of all ages, origins,

The Future and the Past
Securities and Exchange Commission Rule 156 requires financial institutions to advise investors to not be idiots. Hence, the disclosure pages of nearly every financial instrument in the U.S. are embedded with the following admission or variant thereof:

“Past Performance Is Not Indicative of Future Results”

“Buy and hold”… “The market goes always up”… “No-one can time the market”… “Buy the dip” “With what? You said not to sell anything”… “Simple, mortgage the farm…”  The image above shows roughly what happens right after everybody feels the warm & fuzzies due to the fact that the market has been going up without a hitch for quite some time. Once the  conviction that it can only rise further is widespread and firmly

A Case of Highway Robbery
What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?

USD-ARS, weekly. For several years the Argentine Peso has followed a certain pattern: it declines mildly, but steadily, with little volatility for long time periods, and then spikes in crash waves whenever a crisis situation comes to a head. In early 2011, it took roughly four pesos to buy one US dollar – which was already an enormous loss of value relative to the 1:1 exchange rate that prevailed under Argentina’s currency board prior to the government default and banking system collapse of 2001. When Mr. Macri was elected

Brainwashed by Academe
Not a day goes by that doesn’t supply a new specimen of inane disclarity.  Muddy ideas are dredged up from tainted minds like lumps of odorous pond muck.  We do our part to clean up the mess, whether we want to or not.

No longer in demand: famous Enlightenment philosopher John Locke (1632–1704), who is widely considered the “Father of Liberalism” (classical liberalism, that is). [PT]

These days, individuals, who like John Locke “love truth for truth’s sake,” are far and away in the minority.  Out of the bowels of America’s higher learning institutions comes a young populace with soiled brains.  What’s more, you will likely end up on the hook for their idiocy.
Take one Andy Vila, for instance.  The 21 year old

The Pointlessness of Negative Yields
If there are any virtues of debt instruments with negative yields we have yet to realize them. Certainly, we understand that as bond yields fall, bond prices rise, and bond investors are rewarded with capital appreciation. But when capital is appreciating as a consequence of negative yields, we suspect there is something fundamentally wrong with the capital itself.

Not only is the stock of negative-yielding debt at a new record high of almost $17 trillion, lately there has been a big surge in corporate debt sporting negative yields-to-maturity. [PT]

Capital markets, as we have always understood them, are centered around lenders buying debt – such as a bond – at a yield that compensates for the risk