JUN
17 18 SIT EC y POL
ND denounce Global-neoliberal debacle y propone State-Social
+ Capit-compet in Econ
ZERO HEDGE ECONOMICS
Neoliberal globalization is over. Financiers know it, they
documented with graphics
"You are sadly mistaken if
you think it will end in anything other than a train wreck... The
only questions are how serious the damage will be, and who will pick up the
bill."
In describing various economic train wrecks these last few
weeks, I may have given the wrong impression about trains. I love riding the
train on the East Coast or in Europe. They’re usually a safe and efficient way
to travel. And I can sit and read and work, plus not deal with airport
security. But in this series, I’m concerned about economic train
wrecks, of which I foresee many coming before The Big One which I call The Great Reset, where all the debt,
all over the world, will have to be “rationalized.”
Unlike actual trains, we as individuals don’t have the
option of choosing a different economy. We’re stuck with the one we have, and it’s barreling forward in a
decidedly unsafe manner, on tracks designed and built a century ago. Today, we’ll review yet another
way this train will probably veer off the tracks as we discuss the
numerous public pension defaults I think are coming.
Today’s letter is chapter 6 in my Train
Wreck series. If you’re just joining us, here are links to help you
catch up.
- Credit-Driven Train Crash (May 11)
- Train Crash Preview (May 18)
- High Yield Train Wreck (May 25)
- The Italian Trigger (June 1)
- Debt Clock Ticking (June 8)
As you will see below, the pension crisis alone has catastrophic
potential damage, let alone all the other debt problems we’re discussing in
this series.You are sadly mistaken if you think it will end in
anything other than a train wreck. The only questions
are how serious the damage will be, and who will pick up the bill.
Demographics and
Destiny
It’s been a busy news year, but one under-the-radar story
was a wave of public
school teacher strikes around the US. It started in West Virginia and
spread to Kentucky, Oklahoma, Arizona, and elsewhere. Pensions have been an
issue in all of them.
Thinking through this challenge, I’m struck by how many of our economic problems result from the steady
aging of the world’s population. We are right now living through a
combination unprecedented in human history.
- Birth rates have plunged to near or below replacement level, and
- Average life spans have increased to 80 and beyond.
Neither of these happened naturally. The first followed
improvements in artificial birth control, and the second came from better
nutrition and health care. Each is beneficial in its own way, but together they
have serious consequences.
This happened quickly, as historic
changes go. Here is the US fertility rate going back to 1960.
See Chart
https://www.zerohedge.com/sites/default/files/inline-images/Imaget_2_20180615_TFTF.jpg?itok=_ULANOKr
As you can see, in just 16 years (1960–1976), fertility in
the US dropped from 3.65 births per woman to only 1.76. It’s gone sideways
since then. This appears to be a permanent change. It’s even more pronounced in
some other countries, but no one has figured out a way to reverse it.
Again, I’m not saying this is bad. I’m happy young women
were freed to have careers if they wished. I’m also aware (though I disagree)
that some think the planet has too many people anyway. If that’s your worry,
then congratulations, because new-human production is set to fall pretty much
everywhere, although at varying rates.
Breaking down the US population by
age, here’s how
it looked in 2015.
See Graph:
Think of
this as a python swallowing a pig. Those
wider bars in the 50–54 and 55–59 zones are Baby Boomers who are moving upward
and not dying as early as previous generations did. Meanwhile, birth rates
remain low, so as time progresses, the top of the pyramid will get wider and
the bottom narrower. (You can watch a good animation of the process here.)
This is
the base challenge: How can a shrinking group of working-age people support a
growing number of retirement-age people? The easy and quick
illustration to this question is to talk about the number of workers supporting
each Social Security recipient. In 1940, it was
160. By 1950 it was 16.5. By 1960 it was 5.1. I think you can see a trend here.
As the chartbelow shows, it will be 2.3 by 2030.
See Chart:
Triple Threat
In theory, state pensions are stand-alone entities that
collect contributions, invest them for growth, and then disburse benefits. Very
simple. But in many places, all three of those components aren’t working.
- Employers (governments) and/or workers haven’t contributed enough.
- Investment returns have badly lagged the assumed levels.
- Expenses are more than expected because they were often set too high in the first place, and workers lived longer.
Any real solution will have to solve all three
challenges—difficult even if the political will exists.
A few states are making tough choices, but most are not. This is not going to end well for taxpayers or retirees in
those places.
Assumed Disaster
Crunching the
numbers, the Pew study found the New Jersey and Kentucky state pension systems
have the highest insolvency risk. Both were fully-funded as recently as the
year 2000 but are now at only 31% of where they should
be.
See Chart:
But that’s not all.
Even if you are in one of the (few) states with stable pension plans, you’re
still a federal taxpayer, and that’s who I think will end up bearing much of
this debt. And as noted above, it is debt.
The Pew study describes it as such in this chart showing state and local
pension debt as a share of GDP.
See Chart
This means
in six years, without the $6 trillion being somehow restored (magic beans?),
pension underfunding will be at $8.4 trillion or thereabouts, even if nothing else
goes wrong.
The level
of underfunding will rise dramatically during the next recession. Total US
government debt from top to bottom will be more than $40 trillion only a few
years after the start of the next recession. Again, not including unfunded liabilities.
I wrote last year that state and local pensions are The
Crisis We Can’t Muddle Through. That’s still what I think. I’m glad
officials are starting to wake up to the problem they and their predecessors
created. There are things they can do to help, but I
think we are beyond the point where we can solve this without serious pain on
many innocent people. Like the doctor says before he cuts you, “THIS IS
GOING TO HURT.”
…
SOURCE https://www.zerohedge.com/news/2018-06-17/demographics-and-destiny-pension-train-has-no-seat-belts
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"Powell is raising
the federal funds rate so that he can later cut itwhen the economy
inevitably contracts. Similarly, he is reducing the balance sheet so that he can later increase it when
the yield curve inverts and the big banks need another great big bailout..."
Futility with
Purpose
Plebeians
generally ignore the tact of their economic central planners. They care more that their meatloaf is hot and
their suds are cold, than about any plans being hatched in the capital
city. Nonetheless, the central planners
know an angry mob, with torches and pitchforks, are only a few empty bellies
away. Hence, they must always stay on
point.
One of the
central aims of central planners is to achieve effective public
exhortation. While they pursue futility, in practice. They must do
so with focus and purpose.
Statistics, with per annum projections, particularly those
that show increasing exports and decreasing imports, are critical to
maintaining the proper narrative. The USA’s embarrassing deficit in the
balance of international payments will certainly diminish if it is sketched
accordingly in an “official” report… right?
Yet the
planners always disregard the simple observation that an economy is composed of
countless, and variable, inputs.
Amid the Madness
Amid the
madness, Ben Bernanke, the Fed Chair at the time, in what he later
characterized as a courageous act, soiled his pantaloons… and then he soiled
them again. He cut the federal funds rate
to practically zero and began ravenously consuming toxic mortgage backed securities
and Treasury notes, ultimately taking the Fed’s balance sheet from roughly $900
billion to over $4.5 trillion by early 2015.
See Chart:
Now, as
Fed Chair, it’s Powell’s job to mop up Bernanke and Janet Yellen’s odorous
mess. This mop up effort has generally been proceeding as follows…
But that’s
not the only mop up work the Fed’s doing. Starting in October
2017, the Fed began contracting its $4.5 trillion balance sheet. If
they’re following their stated
plan, the balance sheet should now be shrinking by $50 billion per
month. Have you noticed that the status of the ongoing balance sheet
reduction operation is not mentioned in FOMC meeting statements?
See Chart:
Chasing the Wind
On Wednesday, and within the above stated context, Fed Chair
Powell delivered the FOMC’s latest remarks.
As expected, the federal funds rate was raised a quarter of a percent to a
range of 1.75 to 2 percent. The Fed also clarified that it is their
intention to hike rates two more times this year.
Powell also reaffirmed the Fed’s mandate to foster maximum
employment and price stability, which, for reasons unclear, they consider to be
2 percent price inflation. Of course, he didn’t mention the Fed’s
unstated mandate: To keep the big banks flush with credit and contrive a
risk-free market where they can always borrow short and lend long, and pocket
the spread for providing the world with the indispensable service of debt – and
asset bubbles – without limits.
All this is well and good,
especially if you are a lender. But it supposes that the Fed’s whole
attempt to plan the economy is within a framework of something that is
completely under their control. THIS IS PATENTLY FALSE.
See Chart:
https://www.zerohedge.com/sites/default/files/inline-images/3-CPI-and-FF-rate-768x427.png?itok=o1f050HG
At the moment, Powell is raising the federal funds rate so
that he can later cut it when the economy inevitably contracts.
Similarly, he is reducing the balance sheet so that he can later increase it
when the yield curve inverts and the big banks need another great big
bailout. No doubt, today’s tightening policies will
trigger tomorrow’s crisis response.
See Chart:
https://www.zerohedge.com/sites/default/files/inline-images/4-case-shiller-768x428.png?itok=qCTJIF15
Case-Shiller
Index of US home prices: the bubble has been resurrected – hurrah! One guess
what will happen next… [PT]
These,
folks, are facts of life in the year 2018. The Fed is chasing the wind…
and taking us all for a wild smash-up ride.
…
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WHY ARE WE SEEING ALL THESE BIFURCATIONS?
Markets ignoring all
potential bad news (i.e. potential trade wars,
political drama, etc) and volatility again
crushed with no signs of fear or concern with a record corporate buyback program to the tune of $650B
offering a consistent bid under the market. In short: Everything looks rosy.
So
why is the broader market not taking notice? Why, in fact, is the broader market not only
not making new highs, but why is the vast majority of
the stock universe not only lagging, but showing potentially larger bearish
patterns?
These are important
questions for investors to consider as a number of market mysteries are
unfolding beneath the positive headlines.
Consider
the massive bifurcation we are witnessing:
Here’s the
$NDX screaming to new highs, yet the broader $NYSE is not only down on the year,
but it negatively diverged during the latest $NDX rally:
See Chart
Let’s dissect them
both a bit.
Firstly,
the $NYSE, not only is not anywhere near the January highs, but it’s engaged in
a potential larger bear flag pattern:
See Chart:
Indeed,
here we are after a multi-week rally and nearly 42% of $NYSE components remain
below their 200 day moving average:
See Chart:
The main message:
Index gains are driven by fewer and fewer stocks.
Again I have to ask:
If things are so great then why are thousands of stocks not participating in
this rally?
As I’ve outlined
previously the narrowing of value expansion in favor of the few has became ever
more pronounced in this latest rally. The data exemplifies the divergences and
because of the market cap concentration indices are masking the underlying
weakness in the broader market.
Part of this is of
course driven by the reality of ETF allocations which automatically allocate
funds and these benefit the top components who disproportionately drown out
everything else.
Most notable of
course in $QQQ where the top 10 components (out of a 103) control 55.7% of the
asset value
See Graph:
The
implication: Complacency is back in full swing again as volatility has been
sucked out markets with $VIX again showing readings in the 11/12 range. $VIX at
11/12 with large swaths of stocks below their 200MA?
Last week
we actually witnessed a bit of a flash crash in the underlying volatility index
on the $RUT, the $RVX:
See Chart:
Ever since the lows
of the financial crisis markets have been in a well defined pattern of
volatility compression. During the February correction this pattern has been
challenged, but it held in the $RUT. Yet last week it crashed to a new all time
lows just as $RUT is approaching 2 long term resistance lines. Indeed, this
volatility flash crash suggests the potential for a long term bottoming candle
which could signal the end of the low volatility game coming to markets.
Consider
the larger $VIX. In February it broke above its multi year descending trend
line. The recent rally has seen it defend this trend line several times over
suggesting a bullish pattern in the $VIX:
See Chart:
The bottom line
here: Select key sectors are making new highs on ever weakening internal
participation, while other sectors are showing distinct underperformance and
bearish patterns as volatility patterns suggest potentially bullish patterns.
How to
square these conflicting signals with all the good news seen in the headlines.
Here’s a hint:
See Chart:
Which brings me to the initial question: Why are we
seeing all these bifurcations?
Here are some
observations that may yield some clues as to the answer:
The
outsized earnings growth we are witnessing in 2018 is not sustainable. Achieved mainly via fiscal stimulus earnings
growth is peaking in 2018 and will be much more subdued in 2019 to the tune of
5% if things go well and larger margin compression can be avoided. This is also true for GDP growth as there is precious little
evidence for expanding GDP growth into 2019 and 2020.
Here’s the
Fed’s consensus real GDP growth forecast
See Chart:
Does not appear to
be expansionary to me.
The
message: Earnings growth and GDP growth are both peaking in 2018.
At the
same time yields are rising and we see it on the short end:
See Chart:
Competition is
emerging in the supply/demand equation as yields are rising above the S&P
500 dividend yield.
Central banks are
pulling back in stimulus. The Fed will, albeit slowly, keep raising rates and
reducing its balance sheet and the ECB will end QE by the end of 2018. In
short: In 2019 there will be a lot less artificial stimulus to go around as the
cost of financing is increasing and earnings growth will be slowing down.
And fiscal
stimulus, while headline
friendly, comes at a real cost and we can already see
its impact in the early budget figures:
See Graph:
As bullish
as 3.8% unemployment appears on the surface historically speaking there is no
evidence to suggest that such low unemployment is sustainable for an extended
period of time. Indeed, quite the opposite is true as the only points of
precedence suggest reversions into the 6% range ACCOMPANIED BY A RECESSION:
See Chart:
So perhaps all these
bifurcations we are witnessing in markets are not mysteries after all. Rather
we are seeing markets negotiating the positive impacts of an artificially
induced sugar high with money allocated into ever fewer participants on
the one hand, and weakening participation on the other hand, perhaps beginning
to price in a new reality: 2018 is shaping up to be a
peak growth year at the end of an extended cycle that was brought about by
central bank intervention, artificial low rates and global record debt expansion,
all of which will be headwinds in a rising rate and deficit expanding
environment with less stimulus to be had.
All of which can be
summarized in a single macro chart:
See Chart:
….
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US
DOMESTIC POLITICS
Seudo democ y sist
duopolico in US is obsolete; it’s
full of frauds & corruption. Urge cambiarlo
"One good turn deserves another..."
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Regardless of your background, socioeconomic status, or political
spectrum, everything you do, say, and think is being subtly shaped by a “Deep
State.” But the shadow organization I’m talking about isn’t the Alt-Right or
Globalist Left.
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"If you support this bill… I think this is a way to
potentially lose 50 seats [in the House]..."
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US-WW ISSUES (World & War): M-East .. plus
Global depression is on…China, RU, Iran search for State
socialis+K- compet. D rest in limbo
"You cannot do that with the chancellor... relations between Merkel and Seehofer would
seem beyond repair..."
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Among them are 450 adult men
and 80 women -- including at leastseven pregnant women -- as well as 11 under-13s and 93
adolescents...
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NATO’s chess pieces are being positioned
in Norway and surrounding regions before the largest military exercise since the Cold
War this fall. How will Russia
respond?
[[ In all this US-NATO drills the chance of 1 mistake will sparks WW3.. US will be responsible ]]
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SPUTNIK and RT SHOWS
US inside GEO-POL n GEO-ECO ..News
On Friday, Beijing threatened
to impose tariffs on US energy products in response to $50
billion in tariffs imposed by US President Donald Trump. Such tariffs
would inhibit Chinese refiners from buying US crude imports, potentially
crashing US energy markets and hitting the fossil fuel industry where it hurts
the most: in shareholder approval.
"This is a big deal. China is essentially the largest customer
for US crude now, and so for crude it's an issue, let alone when you
involve [refined] products, too. This is obviously a big development," Matt Smith,
director of commodity research at ClipperData, told Reuters.
…
RELATED:
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RT SHOWS
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NOTICIAS IN SPANISH
Latino America looking for alternatives to neoliberalism to
break with Empire:
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GLOBAL RESEARCH
Geopolitics & Econ-Pol crisis that leads to more
business-wars: its profiteers US-NATO
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PRESS TV
Global situation described by Iranian observers..
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