Not Adding Up
One of the more disagreeable discrepancies of American life in the 21st century is the world according to Washington’s economic bureaus and the world as it actually is.  In short, things don’t add up.  What’s more, the propaganda is so far off the mark, it is downright insulting.

Coming down from the mountain with the latest data tablet… [PT]

The Bureau of Labor Statistics (BLS) reports an unemployment rate of just 3.7 percent.  The BLS also reports price inflation, as measured by the consumer price index (CPI), of 1.8 percent.  Yet big city streets are lined with tents and panhandlers grumble “that’s all” when you spare them a dollar.
In addition, good people of sound mind and honest intentions are racking up debt like

Suspicious Phrases
There are certain phrases – like “trust me” or “I got this” – that should immediately provoke one’s suspicion.  When your slippery contractor tells you, “trust me, your kitchen renovation will be done before Christmas,” you should be wary.  There is no way it will be done before late spring.

USD-CNH (offshore yuan) exchange rate – the support/resistance level at 7 finally breaks amid escalating trade war rhetoric. [PT]

Or when your incompetent client says, “I won’t be needing your services at this time, I’ve got this.”  You should expect a panicked phone call at 5:00 PM on Friday. “This is way more than I can handle,” your client will say, “take care of it.”
On Monday, when the sky was falling, and there was much

Do You Hear a Bell Ringing?
The sun shines brightest across the North American continent as we enter summer’s dog days.  Cold sweet lemonade is the refreshment of choice at ballparks and swimming holes alike.  Many people drink it after cutting the grass, or whenever else a respite from the heat and some thirst quenching satisfaction is needed.

Regardless of whether companies were able to “beat estimates” (which as often happens, were revised lower just before the reporting season started), their actual Q2 results didn’t look very encouraging so far. The manufacturing sector in particular looks a bit frayed around the edges as the saying goes. [PT]

The economy, after 10 years of growth, appears to be heading for a respite too.  Second

Realizing the Full Implications of the Forthcoming Catastrophe

“Facilis descensus Averno.” – Virgil (Publius Vergilius Maro)

Delivering Tomorrow’s Curses
Roman poet Virgil penned these words in his epic, The Aeneid, roughly a generation before the birth of Jesus of Nazareth.  They can be loosely translated to, “the descent to hell is easy.”  Those who’ve traversed this passage can attest to the veracity of this axiom.

Virgil reading the Aeneid to Augustus, Octavia and Livia. Contrary to what one might think at first blush, Octavia didn’t fall asleep because she was bored by it – rather, when Virgil recited Book Six, she fainted (the veracity of this account is not undisputed, but it’s a good story anyway). A little side note: Virgil

Tending Towards Maximum Perversity
According to Finagle’s corollary to Murphy’s law, “Anything that can go wrong, will — at the worst possible moment.”  Taken a degree further, per O’Toole’s corollary of Finagle’s law, and the second law of thermodynamics, “The perversity of the Universe tends towards a maximum.”

Murphy’s law in action… not even Murphy himself was safe from it. [PT]

No doubt, the perverse effect of central planning on the economy is tending towards a maximum.  This tendency can be traced back well over a century, with the advent of the Fed and the federal income tax in 1913. Our purpose today, however, is to look back a mere decade. This offers an adequate sampling of O’Toole’s corollary of Finagle’s law in action.
For

A Good Story with Minor Imperfections
“If you don’t know where you are going, any road will get you there,” is a quote that’s oft misattributed to Lewis Carrol. The fact that there is ambiguity about who is behind this quote on ambiguity seems fitting. For our purposes today, the spirit of the quote is what we are after. We think it may help elucidate the strange and confusing world of fake money in which we all travel.

Consumer price index, y/y rate of change – the Fed is not satisfied with the speed at which monetary debasement raises everybody’s cost of living lately. And no, they don’t think said speed should be lowered. [PT]

For example, the monetary policy outlook immediately following last month’s FOMC meeting was as clear as a

Freedom and Apple Pie
The days are long and hot in the Northern Hemisphere when real American patriots raise the stars and stripes. Today the free and brave, with duty and self-sacrifice, begrudgingly accept federal holiday pay to stand tall upon their own two feet. Rugged individualism and uncompromising independence are essential to their character.

Independence day festivities…

With purpose and intent, they assemble as merry mobs along the shoreline to celebrate American Independence. Freedom lovers – descendants of Daniel Boone – gather to eat hot dogs and pitch horseshoes while downing tipples of corn syrup and fermented grain. When the sun slips beyond the western horizon and the stars twinkle bright, they hoot and holler at the

A Distorted Landscape
One of the more remarkable achievements of fake money creation is that it distorts and disfigures the world in odd and uncanny ways.  Dow (not quite) 27,000.  Million dollar shacks.  Over $13 trillion in subzero-yielding debt. You name it.  Any and every disfiguration is possible with enough fake money.

The global stock of outstanding government bonds with negative yields-to-maturity reaches a new record high of more than $13 trillion – this is insanity writ large. [PT]

However, when it comes to the full range of ways fake money distorts the economic landscape, asset price inflation is merely a cheap facade. The real, mega-disfigurations pile up in the arena of international trade.  What’s more, they extend well

An Epic Folly for the Ages
Today we begin with a list.  A partial list.  And in no particular order…
Angela Merkel. Donald Tusk. Mario Draghi. Donald Trump. Jerome Powell.  Shinzo Abe.  Haruhiko Kuroda.  Theresa May. Boris Johnson. Mark Carney. Xi Jinping.  Emmanuel Macron.  Vladimir Putin. Justin Trudeau. Juan Trump.  And many, many more…

Politicians and bureaucrats of the modern age of statism and central planning… fighting a rearguard action doomed to fail. [PT]

These central planners – though they may not know it – are facing a no-win situation. They have extrapolated the past and are attempting to preserve the status quo into the future.  Yet their efforts to perpetuate the upward growth curve of their countries and unions are

A Loose Relationship
The Dow Jones Industrial Average made another concerted run at the elusive 27,000 milestone over the last several weeks.  But, as of this writing, the index has stalled out short of this psychosomatic barrier.  By our estimation, this is for the best.

Since early 2018 the DJIA has gone nowhere, albeit in interesting ways… [PT]

While not always apparent, the stock market generally maintains a loose connection to the underlying economy. Over long multi-decade periods, as measured by the price-to-earnings (P/E) ratio, it will undulate between stages when it is cheap and stages when it is dear. Eventually, however, the stock market reverts towards its mean P/E ratio – always overshooting and undershooting as it cycles

A Plan for Everything!
The run-up to the presidential primaries offers a funhouse reflection of American life.  Presidential hopefuls, hacks, and has-beens turn to focus groups to discover what they think the American electorate wants. Then they distill it down to hollow bumper stickers. After that, they pump their fists and reflect it back with mindless repetition.

A plea for clemency from Mr. 1/1024th crow. [PT]

Change We Can Believe In.  Feel the Bern.  Make America Great Again.  Sí Se Puede.  Fighting for Us.  Compassionate Conservatism.  A Stronger America.  Ross for Boss.  Morning in America. Not Just Peanuts. Nixon’s the One.  Dean Scream.  And much, much, more…
The mantras are both idiotic and comical. They provide political

The Ugly End of Globalization
Sometime in the fall of 2018 a lowly gofer at the New York Stock Exchange was sweating  bullets.  He had made an honest mistake.  One that could forever tag him a buffoon.

Art Cashin the living hat-stand, going through a succession of DJIA milestone hats. He promised was going to crack a smile for the Dow 27,000 hat photo, alas, it was not to be. [PT]

After trading sideways for most of the spring, the Dow Jones Industrial Average was on the move.  When it closed at 26,828 on October 3, it appeared the Dow was but one trading day away from eclipsing 27,000.  Everyone, including Jim Cramer, just knew it was about to happen.
And this was precisely what the NYSE gofer feared most.  For he had failed to procure

A Jolly Little War
The dawn of war is a time of simple clarity and purpose.  Good guys vs. bad guys.  Cowboys vs. Indians.  Confederates vs. Yankees.  Coppers vs. robbers.  It’s a time when lines are drawn, songs are sung, and drums are beaten with gaiety and confidence.

A jolly little trade war – easy to win, according to the CiC [PT]

Indeed, calls for ‘a jolly little war’ are always greeted with merriment and optimism.  This also goes for the dawn of a trade war.  Regardless of whether you’re from Scranton or Suzhou, the escalating  Trump vs. Xi standoff all seems so virtuous.  “We are right, they are wrong,” and vice versa.
Here in the USA, the perspective is crystal clear.  America’s rightful bounty is within reach.  After several

Fake Work
Clarity.  Simplicity.  Elegance.  These fundamentals are all in short supply.  But are they in high demand? As far as we can tell, hardly a soul among us gives much of a rip about any of them.  Instead, nearly everyone wants things to be more muddled, more complicated, and more crude with each passing day.  That’s where the high demand is.

One can always meet the perils of overweening bureaucracy with pretend happiness… [PT]

For example, executing and delivering work in accordance with the terms and conditions of a professional services contract these days is utterly dreadful.  The real work is secondary to fake work, trivialities, and minutia.  Superfluous paperwork and an encumbrance of mandatory web-based tools are immense

Why a Chernobyl-like Financial Disaster is Inescapable
In the early morning hours of April 26, 1986 – roughly 33 years ago – things went horribly wrong in the town of Pripyat, in northern Soviet Ukraine.  Reactor No. 4 at the V. I. Lenin Nuclear Power Plant, also known as the Chernobyl Nuclear Power Plant, was overwhelmed by an uncontrolled reaction.  There was no stopping it.

Chernobyl after the explosion (left) and today (right), encased in a steel sarcophagus. [PT]

Two initial explosions blew the top off the reactor.  Once exposed, plumes of fission matter were wafted into the atmosphere by an open-air graphite fire.  Before long, this radioactive material precipitated onto Western Europe and the Western USSR.
Nine days later the

Learning From Other People’s Mistakes is Cheaper
One benefit of hindsight is that it imparts a cheap superiority over the past blunders of others.  We certainly make more mistakes than we’d care to admit.  Why not look down our nose and acquire some lessons learned from the mistakes of others?

Bitcoin, weekly. The late 2017 peak is completely obvious in hindsight… [PT]

A simple record of the collective delusions from the past can be quickly garnered from a price chart over time.  Market peaks appear so obvious, after the fact.  Perhaps with a little examination we can prevent some of our hard earned capital from being returned to dust.
Take bitcoin, for instance.  What were those morons thinking who bought bitcoin at over $17,000 in

Unsolicited Advice to Fed Chair Powell
American businesses over the past decade have taken a most unsettling turn.  According to research from the Securities Industry and Financial Markets Association, as of November 2018, non-financial corporate debt has grown to more than $9.1 trillion [ed note: this number refers to securitized debt and business loans, other corporate liabilities would add an additional $11 trillion for a total of $20.5 trillion].

US non-financial corporate debt takes flight – the post 2008 crisis trajectory is breath-taking, to say the least [PT]

What is the significance of $9.1 trillion?  And what are its looming repercussions?  Here, for your edification, we’ll take a moment to properly characterize this number.

A Growing Gap
The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.

US nominal GDP vs total federal debt (in millions of USD) – government debt has exceeded  total economic output for the first time in Q4 2012 and since then its relative growth trajectory has increased – and it seems the gap is set to widen further. [PT]

GDP for the quarter, as estimated by the March 29 update to the New York Fed’s GDP Nowcast, grew at an annualized rate of 1.3 percent.  For perspective, annualized GDP growth of 1.3 percent is akin to getting a 1.3 percent annual raise.  Ask any working stiff, and they’ll tell you… a

A Gentle Nudge
The America we thought we knew – the country we learned about in grade school – vanished long ago.  In truth, it was gone well before we stepped foot in our first classroom.  But America’s myths and legends remain.

The Wild Bunch… where are their stetsons? Contrary to myth, cowboys rarely sported a stetson. They wore bowler hats instead. The stetson only became available in 1865 and wasn’t really considered fashionable before the turn of the century. [Myth buster PT]

The myth that America makes the world safe for democracy.  The legend that the role of free press in America is to hold government accountable.  The myth that the U.S. Constitution is the supreme law of the land.  The legend that the Fed maintains stable

Extrapolating The Recent Past Can Be Hazardous To Your Wealth
“Those who cannot remember the past are condemned to repeat it,” remarked George Santayana over 100 years ago.  These words, as strung together in this sequence, certainly sound good.  But how to render them to actionable advice is less certain.

George Santayana – purveyor of eminently quotable wise words by the wagon-load, but what shall one do with them in practice? [PT]

Aren’t some facets of the past – like the floppy disk – not worth remembering?  And aren’t others – like a first taste of romance – worth repeating… if only it were possible?
Where investing is concerned, remembering the past – and discerning what to make of it – can actually be a handicap.  Where does the

Not the Brightest Tool in the Shed
Shane Anthony Mele stumbled off the straight and narrow path many years ago.  One bad decision here.  Another there.  And he was neck deep in the smelly stuff.
These missteps compounded over the years and also magnified his natural shortcomings.  Namely, that he’s a thief and – to be polite – a moron.

Over-educated he ain’t: Shane Anthony Mele, whose expressive mug was captured by a Florida police photographer first in pensive and then in defiant mode. A few days ago he inter alia stumbled over his exceedingly well-developed inability to properly evaluate collectors items. [PT]

Recently the confluence of these two failings came together like a sewage spill to a river draining through the center of

Riding the Tailwinds of Fiat Money Inflation to Fame and Fortune
Warren Buffett bought his first shares of stock when he was 11 years old.  He saved up $114.75 and “went all in,” purchasing three shares of Cities Service preferred stock.  The day was March 11, 1942 – nearly 77 years ago.  Buffett recently reminisced about this purchase in his annual letter to shareholders:

“I had become a capitalist, and it felt good.”

The Oracle of Omaha – he was a great stock picker (lately he is suffering from “style drift”), but he also had the tailwinds of the greatest fiat money inflation in human history at his back during his entire career. Buffett would undoubtedly have been a great investor without it as well, but one cannot deny that the

One Great Big Difference
On a beautiful midsummer day, roughly six months ago, two distinguished men, of distinguished stature, crossed paths under precarious circumstances.  They are very much alike, these two distinguished men.

Let’s confuse him…  [PT]

Both are men of enormous ego.  Both are filled with ambitious delusions for the future.  Both are masters of persuasion.  Both offer a cause and conviction people can rally behind.
Both deliver frequent promises of greatness.  Both hold up historical allusions of eminence, and do so with confidence and flair.  Both claim destiny is on their side.
Does one read The Wall Street Journal?  Does one not?  We don’t know.
But we do know there’s one great big significant difference between

Almost Predictable
One of the more enticing things about financial markets is not that they’re predictable.  Or that they’re not predictable.  It’s that they’re almost predictable… or at least they seem they should be.

For a long time people believed – and from what we read and hear, many still do – that economic cycles move in easily predictable, regular time periods. All you had to do was create a chart of the up and down waves of your favorite cycle model and extrapolate it into the future, and presto, your prediction was ready to be sold. But it turns out it is not that simple. The chart above was published by the “Inflation Survival Letter” in the late 1970s and purported to show the future trend of the so-called Kondratiev Wave, a

Unexpected Inflection Points
High inflection points in life, like high inflection points in the stock market, are both humbling and instructive.  One moment you think you’ve got the world by the tail.  The next moment the rug’s yanked right out from under you.

The yanked rug… [PT]

Where the stock market is concerned, several critical factors are revealed following a high inflection point.  These factors are not always obvious at first.  But they become apparent over time.  Most notably, it is revealed that the period leading up to the high inflection point was more suspect than previously understood.
The stock market, as represented by the S&P 500 Index, became a sort of money minting machine over the last decade.  Quarter after

The Recline and Flail of Western Civilization and Other 2019 Predictions

“I think it’s a tremendous opportunity to buy.  Really a great opportunity to buy.” – President Donald Trump, Christmas Day 2018

Darts in a Blizzard
Today, as we prepare to close out the old, we offer a vast array of tidings.  We  bring words of doom and despair.  We bring words of contemplation and reflection.  And we also bring words of hope and sunshine.

Famous stock market investment adviser Field Marshal D. Trump [PT]

After all, the New Year’s nearly here.  What better time than now to turn over a new leaf?  New dreams, new directions, and new delusions, are all before us like a patch of ripe strawberries.  Today’s the day to make a double-fisted grab for

Offering Peace and Joy
Heading into the final weekend before Christmas we’ll take a brief hiatus from the economy and markets. We do so, however, with intent and purpose. Our principal objective is to offer peace and joy as you go about your merry way.

Unfortunately, Santa isn’t coming this year. Right after losing his behind in cryptos, he went all in with everything he had left on FANG stocks, margined up to his eyebrows. He trusted his well-worn ability to deliver the traditional “Santa Claus rally”, but was waylaid by the dollar-dissolving vampire bat Ptenochirus Iagori Powelli  hiding in a snowdrift. He needs some time off to forget. [PT]

Who wants to contemplate the unemployment rate or the consumer price index while singing

Stars in the Night Sky
The U.S. stock market’s recent zigs and zags have provoked much squawking and screeching.  Wall Street pros, private money managers, and Millennial index fund enthusiasts all find themselves on the wrong side of the market’s swift movements.  Even the best and brightest can’t escape President Trump’s tweet precipitated short squeezes.

The Donald mercilessly hits the shorts with a well-timed tweet. But as it turns out, this market is in a really bad mood at the moment. [PT]

The short-term significance of the DJIA’s 8 percent decline since early-October is uncertain.  For all we know, stocks could run up through the end of the year.  Stranger things have happened.
What is also uncertain is the nature of this purge:

Mud Volcanoes
There are numerous explanations for just what in the heck is going on with the economy.  Some are good.  Many are bad.  Today we’ll do our part to bring clarity to disorder…

Two data series it is worth paying attention to at the moment: the unemployment rate (U3) and initial claims. As the chart at the top shows, when the former makes a low it is time to worry about the economy. Low points in the U3 UE rate slightly lead the beginning of recessions. Claims on the other hand are near coincident indicators of the stock market, this is to say, lows in initial claims tend to happen within a time period of four to six weeks surrounding major stock market peaks (in most cases they lead slightly, but small lags have occasionally

How to Blow $9 Billion
The life cycle of capital follows a wide-ranging succession. It is imagined, produced, consumed, and destroyed. How exactly this all takes place involves varying and infinite undulations.

The Stroh Brewery in Detroit. The company provided an example of how wealth that has been accumulated over generations can be completely destroyed due to just a handful of really bad decisions. [PT]

One generation may produce wealth, while the next generation burns through it.  Various facets of a person’s capabilities, understanding, industry, and character can determine if they are producers or consumers. The most determinant facet of this, however, is how one approaches their unique circumstances.
The July 21, 2014, edition of