Sunday, 31 December 2017

Flying On A Wing And A Prayer. Happy New Year!

Baltic Dry Index. 1366     Brent Crude 66.59

"In politics stupidity is not a handicap."


Will 2018 be the year of the Great Unwind? The year that the “Everything Mania”  fell out of the sky? There’s a whole lot of reason to think that it is. Today we cover what is supposed to be the “new normal,”  the “goldilocks” global economy, firing on all cylinders, fully self-sustainingly recovered from Greenspan-Bernanke’s bubble era that led to The Great Recession.  Time for another WW2 type war?

Up first California today, America tomorrow, the developed world the day after.

"Anytime you don't want anything, you get it."

Calvin Coolidge, 30th United States President.

ALEC: State Pensions $6 Trillion Underfunded; We Risk A Crash Worse Than 2008

By Gary St. Fleur
----The Governmental Accounting Standards Board (GASB) has heard these criticisms and have made two changes in 2012 to the methods used for measuring the supposed financial health of pension plans (Statement No. 67, Financial Reporting for Pension Plans and Statement No. 68, Accounting and Financial Reporting for Pensions). These changes were intended to increase transparency, provide consistency and comparability for the distribution of pension information. Nevertheless, the report by ALEC claims that “states have found ways to work around these requirements and paint an unrealistically rosy picture of their pension funding status.” The report goes on to say that when a risk-free rate of 2.142 percent (average of the 10 and 20-year U.S Treasury bond yields) is utilized the result is a pension system that is underfunded by an earth-shattering $6 trillion dollars. The state of California’s pension alone would be underfunded by $1 trillion using this same formula.

Some analysts are sounding alarmed for the potential fallout of these pension systems that will undoubtedly leave tax-payers on the hook. The personal share of the public’s per capita liability due to these funding shortfalls can reach as high as $67-500 - $115,650 per household.  According to the report by ALEC, “Absent significant reforms, unfunded liabilities of state-administered pension plans will continue to grow and threaten the financial security of state retirees and taxpayers alike. The fiscal calamity could be far deeper and prolonged than the Great Recession. “

Of course, the financial media is focused on more important issues like the price of Bitcoin at this second so discussions on how to fix $6 trillion in pension funding will need to wait!

CalPERS Past The Point Of No Return?

By Gary St. Fleur
The American Council for Capital Formation, or ACCF, has recently made headlines with their scathing critique of the nation’s largest public pension system CalPERS (California Public Employees’ Retirement System). The report entitled “Point of No Returns” was published two weeks ago and argued definitely that CalPERS “continues to mislead taxpayers and pensioners to the true performance…” of their pension system. The study cited poor fund performance, poor financial, managerial competence, politically motivated decisions, and an artificially inflated discount rate as the reasons for the pension systems increased failure.

These accusations did not sit well with CalPERS Board who issued a rebuttal to the report arguing that ACCF’s study “represent a fundamental misunderstanding about CalPERS’ investment strategy and operations.” The pension system’s board went on to suggest that ACCF’s report was drafted to “subliminally promote at anti-pension ideology.” ACCF retorted by explaining that CalPERS has managed to fail its solvency test. Fundamentally, the present value of the fund is not sufficient to cover future obligations: this is in large part because unfunded liabilities for the ailing pension system have grown by a crippling  $138 billion more than assets under management.

ACCF also gave pause to criticize CalPERS interest in poor performing ESG investments. Although the losses absorbed by the pension system accounted for only $600 million, it still represents annual benefits for 12,000 retirees at $50,000 each for one year, or 600 over 20 years. ACCF also went on to criticize CalPERS insistence on using a preconceived exorbitant discount rate to conceivably shield the amount of foreseeable future losses the fund will sustain. ACCF recommends that CalPERS should use a discount rate of 4% to which the CalPERS claimed that such an action “would do serious damage to many California cities, counties, other public agencies, and schools. If implemented, they would forever jeopardize the retirement security of millions of current and retired California public employees and their beneficiaries.”

It appears that from the numbers alone as well as from CalPERS own admission; the California pension system is indeed on the road to complete insolvency: this spells grave alarms for California taxpayers. Currently, CalPERS has a future liability of $436 billion while only having assets of $298 billion.

Commodities at a glance.

"Nothing contributes so much to the prosperity and happiness of a country as high profits."

David Ricardo, 19th century economist.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

Presented without need for comment, but comment I will. At what point in 2018 does “smart money” start exiting the current “mania in everything?”

"We hang the petty thieves and appoint the great ones to public office."


The Greatest Bubble Ever: Why You Better Believe It, Part 1

By David Stockman. Posted On Thursday, December 28th, 2017
During the 40 months after Alan Greenspan's infamous "irrational exuberance" speech in December 1996, the NASDAQ 100 index rose from 830 to 4585 or by 450%. But the perma-bulls said not to worry: This time is different----it's a new age of technology miracles that will change the laws of finance forever.

It wasn't. The market cracked in April 2000 and did not stop plunging until the NASDAQ 100 index hit 815 in early October 2002. During those heart-stopping 30 months of free-fall, all the gains of the tech boom were wiped out in an 84% collapse of the index. Overall, the market value of household equities sank from $10.0 trillion to $4.8 trillion----a wipeout from which millions of baby boom households have never recovered.

Likewise, the second Greenspan housing and credit boom generated a similar round trip of bubble inflation and collapse. During the 57 months after the October 2002 bottom, the Russell 2000 (RUT) climbed the proverbial wall-of-worry----rising from 340 to 850 or by 2.5X.

And this time was also held to be different because, purportedly, the art of central banking had been perfected in what Bernanke was pleased to call the "Great Moderation". Taking the cue, Wall Street dubbed it the Goldilocks Economy----meaning a macroeconomic environment so stable, productive and balanced that it would never again be vulnerable to a recessionary contraction and the resulting plunge in corporate profits and stock prices.

Wrong again!

During the 20 months from the July 2007 peak to the March 2009 bottom, the RUT gave it all back. And we mean every bit of it----as the index bottomed 60% lower at 340. This time the value of household equities plunged by $6 trillion, and still millions more baby-boomers were carried out of the casino on their shields never to return.

Now has come the greatest central bank fueled bubble ever. During nine years of radical monetary experimentation under ZIRP and QE, the value of equities owned by US households exploded still higher----this time by $12.5 trillion. Yet this eruption, like the prior two, was not a reflection of main street growth and prosperity, but Wall Street speculation fostered by massive central bank liquidity and price-keeping operations.

Nevertheless, this time is, actually, very different. This time the central banks are out of dry powder and belatedly recognize that they have stranded themselves on or near the zero bound where they are saddled with massively bloated balance sheets

So an epochal pivot has begun----led by the Fed's committement to shrink its balance sheet at a $600 billion annual rate beginning next October. This pivot to QT (quantitative tightening) is something new under the sun and was necessitated by the radical money printing spree of the past three decades.

What this momentous pivot really means, of course, is ill understood in the day-trading and robo-machine driven casinos at today's nosebleed valuations. Yet what is coming down the pike is nothing less than a drastic, permanent downward reset of financial asset prices that will rattle the rafters in the casino.

This time is also very different because there will be no instant financial market reflation by the central banks. And that means, in turn, that there will be no fourth great bubble, either. Here's why.

The Greatest Bubble Ever: Why You Better Believe It - Part 2

---- Stated differently, fiscal policy has descended into the hands of political mad-men at the very time that monetary policy is inexorably slouching toward normalization. Under those circumstances there is simply no way of avoiding the "yield shock" postulated above, and the cascading "reset" of financial asset prices that it will trigger across the length and breadth of the financial system.

As usual, however, the homegamers are the last to get the word. The unaccountable final spasm of the stock market in 2017 will undoubtedly come to be seen as the last call of the sheep to the slaughter. And owing to the speculative mania that has been fostered by the Fed and its fellow-traveling central banks, it now appears that the homegamers are all-in for the third time since 1987.

Indeed, Schwab's retail clients have never, ever had lower cash allocations than at the present time---not even during the run-up to the dotcom bust or the great financial crisis.

But this time these predominately baby-boom investors are out of time and on the cusp of retirement---if not already living on one of the Donald's golf resorts. When the crash comes they will have no opportunity to recover----nor will Washington have the wherewithal to stimulate another phony  facsimile of the same.

The GOP-Trumpian gang has already blown their wad on fiscal policy and the Fed is stranded high and dry still close the zero-bound and still saddled with an elephantine balance sheet.

That is, what is fundamentally different about the greatest financial bubble yet is that there is no possibility of a quick policy-induced reflation after the coming crash. This time the cycle will be L-shaped----- with financial asset prices languishing on the post-crash bottom for years to come.

And that is a truly combustible condition. That is, 65% of the retirement population already lives essentially hand-to-month on social security, Medicare and other government welfare benefits (food stamps and SSI, principally). But after the third financial bubble of this century crashes, tens of millions more will be driven close to that condition as their 401Ks again evaporate.

That's why the fiscal game being played by the Donald and his GOP confederates is so profoundly destructive. Now is the last time to address the entitlement monster, but they have decided to throw fiscal caution to the winds and borrow upwards of $1.6 trillion (with interest) to enable US corporations to fund a new round of stock buybacks, dividend increases and feckless, unproductive M&A deals.
"The Republicans are busy rearranging the deck chairs on the TITANIC, while the Democrats are busy playing football with the ice cubes."
Technology Update.
With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards?

2017 Was the Year the Robots Really, Truly Arrived

The world seemed different this year, yes? Like something strange has been walking and rolling among us? Like we’re now sharing the planet with a new species of our own creation?

Well, we are, because 2017 was the year that the robots really, truly arrived. They escaped the factory floor and started conquering big cities to deliver Mediterranean food. Self-driving cars swarmed the streets. And even bipedal robots—finally capable of not immediately falling on their faces—strolled out of the lab and into the real world. The machines are here, and it’s an exhilarating time indeed.
Like, now Atlas the humanoid robot can do backflips. Backflips.

“2017 has been an amazing year for robotics,” says roboticist Sebastian Thrun, a pioneer of the self-driving car. “Why 2017? Why did it take us so long?”

Well, it was a confluence of factors, namely the cheapening of sophisticated hardware combined with better brains. “In the past, in robotics we had not-so-smart software with hardware that would break all the time, and that's not a good product," Thrun says. "It's only recently that both computers have become smart enough and that robot hardware has become reliable enough that the very first products start to emerge.”

Perhaps the biggest leap in hardware has been sensor technology. To build a robot you don’t have to babysit, you need it to sense its environment, and to sense its environment it needs a range of sensors. Not just with cameras, but with lasers that build a 3-D map of the robot’s surroundings. These kinds of components have gotten both far more powerful and far cheaper.

“I kind of talk about this finally being the golden age of robotics, and that means that for the first time in the last 12 months or so you see robots really becoming prolific,” says Ben Wolff, CEO of Sarcos Robotics, which makes the most bonkers robot arms you’ve ever seen. “And I think it's because we're finally at that crossover point, where the cost has come down of components while the capability of the components has increased sufficiently.”

Like, come down big time. One sensor cost Sarcos a quarter of a million dollars in 2010. Today, it’s $8,000—that’d be 3 percent of the cost just seven years ago. Other components like actuators—the motors in the joints of something like a robot arm—are also falling steadily in cost. Today, an actuator that once cost $3,500 is closer to $1,500. And it's actuators, perhaps more than any other component, that promise to take robotics to the next level in the very near future.

Loaded with cheaper, supercharged sensors, robots are finally capable of tackling the uncertainty of the human world. Whether humans actually want that is another question. Take delivery robots, for instance. In San Francisco’s chaotic Mission neighborhood this year, a robot called Marble began picking up food and delivering it straight to customers’ doors.

"There is no way of keeping profits up but by keeping wages down."

 David Ricardo, 19th century economist.

The monthly Coppock Indicators finished December

DJIA: 24,719 +265 Up. NASDAQ:  6,903 +297 Up. SP500: 2,674 +199 Up.

Saturday, 30 December 2017

Weekend Update 30/12/2017 The Wreckage of Fiat Money.

“Fiat-money! Let the State 'create' money, and make the poor rich, and free them from the bonds of the capitalists! How foolish to forego the opportunity of making everybody rich, and consequently happy, that the State's right to create money gives it! How wrong to forego it simply because this would run counter to the interests of the rich! How wicked of the economists to assert that it is not within the power of the State to create wealth by means of the printing press!- You statesmen want to build railways, and complain of the low state of the exchequer? Well, then, do not beg loans from the capitalists and anxiously calculate whether your railways will bring in enough to enable you to pay interest and amortization on your debt. Create money, and help yourselves.” 

Ludwig von Mises, The Theory of Money and Credit

This long weekend, an oldie but goodie. A reminder of how the central bankster rigged world really operates on the Great Nixonian Error of fiat money.

But first this. In America, the new Republican tax changes look likely to be disruptive to the global economy but positive to the US economy. But can European banking handle the tax changes?

Whatever it is that the government does, sensible Americans would prefer that the government do it to somebody else. This is the idea behind foreign policy.

P J O’Rourke

IRS Issues Tax Rate Guidance for Stockpiled Foreign Income

By Lynnley Browning
Updated on 29 December 2017, 22:39 GMT
The Internal Revenue Service and Treasury Department will generally allow existing loans and other related-party transactions involving the overseas affiliates of multinational corporations to be taxed at the lower of two preferential rates, according to an official notice.

The notice, released Friday afternoon, says the IRS and Treasury “intend to issue” new regulations clarifying how multinational companies must compute tax bills on the foreign earnings they have accumulated to date.

The tax-overhaul bill signed last week by President Donald Trump requires companies to pay taxes on those earnings at two discounted rates -- 15.5 percent on income held as cash and cash equivalents and 8 percent for illiquid assets. Those rates apply to an estimated $3.1 trillion in earnings stockpiled overseas since 1986.

The 22-page guidance notice from the two federal agencies discusses how authorities plan to define the two types of income. It also addresses how U.S. companies with ownership stakes in certain foreign corporations must tally up the earnings that will be subject to the tax rates when the U.S. entity and the foreign entity have different taxable years. And the new rules will “avoid double counting and double non-counting of earnings” subject to the new tax rates, according to the notice.

The changes come as the U.S. is transitioning away from its previous international tax system as part of the Republican tax-overhaul plan. Previously, U.S. authorities applied a 35 percent tax rate to companies’ earnings globally, but allowed them to defer paying taxes on offshore income until they returned it -- or “repatriated” it -- to the U.S. As a consequence, companies have accumulated years’ worth of profits offshore.

In Europe, Spain carries on digging its hole. Italy carries on being Italy. An unreformable EUSSR heads towards the fate of its mentor the USSR or the earlier Tower of Babel.

Rajoy Says Spain Won't Yield to Blackmail by Catalan Separatists

By Charles Penty
Spanish Prime Minister Mariano Rajoy set in motion the process for convening a new Catalan parliament and said he wouldn’t allow a new separatist administration to blackmail his government.

A session to swear in lawmakers in Barcelona will take place on Jan. 17 before a vote days later to appoint a new regional president if there is a candidate, Rajoy said in an end-of-year news conference in Madrid.

Rajoy dissolved the Catalan parliament in October after drawing on emergency constitutional powers to respond to a unilateral declaration of independence from Spain. Elections held last week in the region produced a majority for parties that support independence in a result that threatens to prolong a secession crisis that is damaging Spain’s economy.

----Choosing a president for Catalonia won’t be easy for the pro-independence parties with former President Carles Puigdemont in Brussels avoiding arrest and his former deputy, Oriol Junqueras, already in jail. A Supreme Court judge is investigating whether the campaign to split from Spain amounted to a rebellion against the government.

Rajoy said his most pressing task for the start of the year would be the need to build consensus for his minority government to pass a budget for 2018.

Why Much Is at Stake in Italy's March 4 Elections

By John Follain and Chiara Albanese
Italy’s all-too-familiar postwar brew of government dysfunction, economic stagnation and toxic debt has investors worried again, even as the specter of populist revolt recedes elsewhere in Europe. The next parliamentary elections in the euro region’s third-biggest economy, now scheduled for March 4, will test stress points including the country’s ambivalent relationship with the single currency, its towering debt and a troubled banking system still trying to dispose of decade-old poisonous holdings.

It will be a crucial test for the anti-establishment, euroskeptic Five Star Movement, especially since a new electoral law encourages parties to build alliances. Five Star is challenging the ruling center-left Democratic Party of Prime Minister Paolo Gentiloni. So is a possible center-right coalition of the Forza Italia party of ex-premier Silvio Berlusconi, the euroskeptic and anti-migrant Northern League and the small, far-right Brothers of Italy; that bloc won regional elections in Sicily in November. But polls have shown that none of these three groups may have the support to win a parliamentary majority on its own. So the elections could end up with a hung parliament, lingering uncertainty, and a reappointment of Gentiloni until fresh elections.

3. How are markets taking the news?

Tension is building, with yield on 10-year government bonds, known as BTP, rising above 2 percent for the first time since Oct. 26. Markets are concerned not just by the prospect of a hung parliament, but also by Five Star’s inexperience at the national level and a possible referendum on Italy’s membership of the euro area. Five Star’s program for government includes overhauling banks and breaking up the European Stability Mechanism and the troika that oversaw bailouts from Greece to Ireland. Add to that worries about how Italy could suffer from an end to the European Central Bank’s quantitative easing program.

Italy is not technically part of the Third World, but no one has told the Italians.

P J O’Rourke

Now back to how the modern world turns, in our ever more corrupt system operating on fiat money, communist money.

….shall be the truth, the whole truth and nothing but the truth.

Spies, lies and the oligarch: inside London’s booming secrets industry

-----The industry’s currency is secrets. Its services range from tracing fraudsters’ assets to darker arts that include hacking, infiltration, honey traps, blackmail and kidnapping. On the front line are the private intelligence agencies. Some of them have benefited from the growth in outsourcing by the law enforcement and spy agencies of the US and its allies — the source, Wahid says, of almost all Arcanum’s work. But many firms have amassed expertise and tradecraft once monopolised by state agencies and put it at the service of tyrants, oligarchs and anyone else willing to pay. Their critics say they have no friends, only invoices, but many in the business see themselves as soldiers of justice in a globalised world, filling a vacuum left by enfeebled states and cash-strapped, antiquated law enforcement. The industry is concentrated in the west because that is where the money is. Since the end of the cold war, the offshore system has helped a growing cohort of kleptocrats and their cronies to channel dubious fortunes into western markets. Officials in western Europe and North America say billions of dollars in dirty money pour in each year, mainly through assets such as real estate. 
London, long a city of secrets, is the industry’s capital. Many firms have taken offices in Mayfair, the exclusive, cosmopolitan quarter where wealth and politics mix.

The Ablyazov case mirrors the “tournament of shadows” fought in the 19th century by spies, soldiers and fortune-seekers from imperial Russia and Britain in an attempt to control Central Asia. Today, though, the political battles of the former Soviet Union are fought not in the parched valleys east of the Caspian but in western courts, parliaments and media. Dictators’ representatives tirelessly curry favour at Westminster and on Capitol Hill. Oligarchs are fixtures in London’s High Court listings. Rare is the business journalist who has not spent lunch listening to the PRs of one recently minted billionaire smear another recently minted billionaire.

As they sized each other up in 2009, Ablyazov says he asked Wahid to prove his worth by providing some valuable intelligence against Nazarbayev, but Wahid only offered documents that Ablyazov had already acquired. (Wahid disputes this.) Ablyazov grew suspicious that Wahid was, in fact, playing a double game and working for Nazarbayev’s regime. As he listened to descriptions of Arcanum’s services, he started to think that the meetings were a trap designed to lure him into illegal activity in the UK, where he had claimed asylum, and decided against hiring the firm. “We never gave them a proposal for fighting Nazarbayev but, yes, we were working for Kazakhstan at this time,” Wahid told me. The two sides had “a general discussion of our capabilities”, he said. But Wahid insisted that Arcanum never does anything illegal. Ablyazov’s suggestion to the contrary — part of a narrative in which Arcanum is key to Nazarbayev’s campaign of persecution — was a “fantasy”, Wahid said.

Those London meetings represented the early exchanges in perhaps the most remarkable battle the secrets industry has yet fought. A Financial Times investigation based on dozens of interviews and thousands of pages of court documents, leaked emails and confidential contracts exposes a saga in which Arcanum is just one piece on a chessboard that spans four continents. It reveals how the mercenaries of the information age are shaping the fate of nations.

----For a country of 18 million people with an economy about half the size of Ireland’s, Kazakhstan has made a disproportionately large contribution to the private intelligence industry. Through the noughties, as its oligarchs poured their fortunes into western assets and listed their companies on western stock exchanges, their appetites and rivalries made lucrative work for these secretive firms.

“At one point, literally everyone I know in London was working on Kazakhstan,” says a private investigator who worked on several Kazakh dossiers. Another says all the money pouring in from the former Soviet Union helped to make the private intelligence game in London “very dirty”.

The British capital, for centuries an entrepĂ´t for spies, moneymen and emissaries, has become the industry’s heart but the archetypal corporate intelligence firm was founded in New York. In 1972, Jules Kroll took skills he had honed exposing those who demanded kickbacks from the family printing business to found what became Kroll Inc. After 32 years of hostile takeovers, hostage negotiations and everything in between, Kroll sold the business for $1.9bn.

By then, rivals had sprung up. Some had links to private military contractors that profited from the wars in Afghanistan and Iraq. Others were founded by CIA or MI6 alumni. The big accountancy firms, including EY, Deloitte and PwC, set up corporate investigations arms. Scores of small outfits emerged, specialising in particular regions or techniques. Some companies fused sleuthing with propaganda, another boom industry. In 2006, FTI Consulting, a US investigations group, paid $260m to acquire the City PR firm Financial Dynamics.

And so on to 2018, and the second year of the Great Trump Presidency. A healthy, prosperous, and enjoyable 2018 to all.

“A third group of inflationists do not deny that inflation involves serious disadvantages. Nevertheless, they think that there are higher and more important aims of economic policy than a sound monetary system. They hold that although inflation may be a great evil, yet it is not the greatest evil, and that the State might under certain circumstances find itself in a position where it would do well to oppose greater evils with the lesser evil of inflation.”

Ludwig von Mises, The Theory of Money and Credit