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."

Napoleon.

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!
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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."

Aesop.

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.
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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.
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"The Republicans are busy rearranging the deck chairs on the TITANIC, while the Democrats are busy playing football with the ice cubes."
Anon.
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

12.19.17
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.
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"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.

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