“In the state of nature profit is the measure of right.”
— Thomas Hobbes (1588-1679)
It has been a depressing day, so far. This morning I read “The Economist” as is my wont of a Sunday morning. A compendium of corruption, violence, ignorance and religious fanaticism, fraud, theft, megalomania… So I turned to the Internet. That didn’t work either, but I thought it worth recording some of the turds I tripped over.
From the Curmudgeon and John Hussman on the effects of corporate buybacks. Corporations are the dip buyers that are supporting the equity markets, while over-leveraging their balance sheets as we head into a vicious recession. Their history is buying high and selling low. This time will be no different.
Corporations have emerged as one of the biggest sources of fresh cash in the stock market, eclipsing even mutual funds with more than half a trillion dollars spent last year, according to data compiled by S&P Dow Jones Indices. They swooped in and bought again on Wednesday as the Standard & Poor’s 500 Index flirted with its largest two-day selloff since January.”
Though nominal economic growth has been tepid, revenue growth has turned negative, and profits as a share of GDP have been falling for more than a year, companies have scampered to boost their per-share earnings by taking out debt to repurchase and reduce the number of shares outstanding. This leveraging has been done at market valuations that are near the highest levels in history on historically reliable measures.
Lacy Hunt manages over $6 billion of Treasuries.
We’ve learned that contrary to Keynesian theory the government expenditure multiplier is zero, if not slightly negative. So there may be a transitory benefit to deficit spending but it is so quickly reversed that ultimately an expansion in government expenditure financed with debt will make economies weaker. So what you have to do is scale back government spending, particularly those types of spending that go to finance daily needs. But that’s politically impossible to do.
And at the same time you basically need to shift income based taxes to consumption based taxes, but you have to address the regressivity of the consumption based taxes. The multipliers of consumption based taxes are minus one, the multipliers on income based taxes are in the minus two to minus three.
These concepts are too difficult for the general public to understand. So they really can’t be explained to them. And furthermore you don’t have the strong political leadership and it has to be done in the context of shared sacrifice.
Charles Hugh Smith shares a story from a correspondent, which describes the impassable thicket of arbitrary regulations that caused him to abandon his plans to open a business and create jobs.
Guess what, our government: you forgot that ultimately you live off the private sector. Yes, let’s pile on another 500 pages of regulations–no problem–nothing could be easier for those in secure jobs funded by taxpayers. But if the private-sector jobs go away, who’s left to pay for state employees to shuffle thousands of pages of regulations and enforce countless “improvements”?
Zero Hedge’s “Tyler Durden” points out that the global debt crisis is spreading.
China, Australia, Brazil, Canada, Sweden – it is beyond us how anyone can declare the crisis isn’t spreading. Be prepared – there are going to be lots of opportunities to both make and lose money.
But first, you have to recognize what is happening.
In addition to the macro-economic woes, we must not forget the crooks that are front-running every trade in the financial markets. From Nanex, via Zero Hedge of course, a concise but complete “Treasure Map” that shows the time advantages that HFTs purchase so that every day is profitable.
What a steaming pile.