Category Archives: Rogues and Rascals

Pension Tsunami Sighted

NY Teamsters Pension Fund becomes first to run out of money.

Oh, and after the close the API announced that crude and product inventories continue to set new records. Not to worry, speculative buying continues. GLWT.

 

You Can’t Make This Stuff Up

At some point we moved into an alternate universe, where illegal is legal and false is true.

The American Association of Cosmetology Schools sued Education Secretary Betsy DeVos claiming that a gainful-employment rule implemented by the Obama administration shouldn’t be applied to beauty schools.

The lawsuit, filed Friday in federal court in Washington, seeks an order barring the rule that threatens career schools’ access to federal student aid if they saddle their graduates with too much debt relative to their earnings. The trade group said the rule is harmful when applied to beauty schools, whose graduates typically underreport income from cash tips.

Give them a break because their graduates cheat on their taxes? Whatever happened to the clean hands rule?

Bloomberg. Emphasis mine.

DROP kills

The Dallas Police and Fire Pension System is mired in political conflict and facing insolvency, due to a combination of poor investment decisions and generous DROP plans. Just like the ones in California that have not yet hit the wall.

California Government Pay

In case you were feeling that government employees in California were underpaid, here’s BART janitor Liang Zhao Zhang pulling down a mere $271,243 for 2015 (and a total of $705,000 in pay and benefits during the four years from 2012 to 2015.).

Check out some of his colleagues here.

Manipulation

Yesterday, the API reported a huge build in crude oil inventories. This morning, the EIA confirmed it. After a couple of minutes hesitation, the algos took over and marched crude up – and turned the Nasdaq and S&P green at the same time. As they have consistently as inventories have built.

MAnipulation has become completely obvious and shameless as the SEC’s so-called supervision turns a blind eye – could it be, perhaps? so that the SEC folks can discreetly become “compliance officers” with no work and large paychecks when they leave.

Inflation

The Fed sounded dovish on the inflation front today. As I have mentioned, there are only two prices worth worrying about. One is labor, up about 2.5% for 2016, and the other is energy. Oil is up from the $30s to the low $50s in the last year.

The real mystery is how oil prices are being kept up despite rapid growth in inventories of both crude oil and refined products, as well as domestic production. I have a sneaking suspicion that OPEC producers, at least, are selling product and partially offsetting their sales with purchases in the futures market, which is used to set contract prices, probably through proxies. We do know that speculative long positions in crude oil are at record levels (also in some other commodities, such as copper), and keep setting new records with each COT report. Someone has deep pockets.

Oil is the price to watch. As oil goes, so goes inflation – and the market, I suspect.

And It’s Gone

Jack Ma points out that the US has wasted $14 trillion on wars.

Since the Vietnam war, more than 45 years ago, the US has embarked on a neocon strategy of war in an effort to build a global empire. The result of that strategy has left American infrastructure second rate, its school system in shambles, and its healthcare system a complete and utter joke.

Just imagine what America could’ve done with $14t of investable dollars, instead of waging wars.

Aside from the wars, America spends more than 50% of its discretionary budget on the military, per annum, 16% of its overall budget.

And the neocons are trying to stir up another one, with Russia. Why? For what? Wag The Dog? And that doesn’t even count the other futile wars, like the “War On Drugs.”

The War On Peace

The most dangerous enemies of peace and freedom are not the Chinese, the Russians or even the North Koreans, but the TLAs – the three-letter agencies of the U.S. government – such as the CIA, NSA, NRO, etc.

Edward Snowden did us all a huge service by publicizing their over-reach. These agencies spend enormous amounts of money on themselves with little or no oversight, much of which is concealed in “black” budgets. They are insulated from U.S. society, to the point that employees and their families are forced to cut their ties with non-employees and socialize only with their fellows (because secrecy). They work to foster conflict and fear in order to maintain their status and expand their reach – and, of course, their spending. Politicians fear the agencies, which know where the bodies are buried and which closets contain skeletons – as we recently saw when Chuck Schumer publicly warned Donald Trump not to cross them. There is a carrot as well as a stick, as the contractors who benefit from the spending make sure to keep money flowing into the politicians’ wallets.

These agencies form the core of the “deep state.” We should not be spending any time worrying about the Russians interfering in our elections. The real threat is much closer to home. It is past time to rein them in.

Fake News

You can’t go anywhere on the web without seeing mention of “fake news,” on which Mrs Clinton blames her defeat. If you go to Google trends, you will find negligible use of the term until September of this year (2016). Then the meme is disseminated and the rate of searches for the term soars.

Obviously this term was promoted by someone although I see no evidence for specific attribution. But it is amazing how a meme can spread like wildfire. Regardless of who originated it, the traditional media pushed hard to promote it, presumably with the idea of discrediting the internet sites that are now their competition.

This should be a real lesson in the power of propaganda. Very scary.

Going Out On A Limb

I think the end of this bubble is beginning, as yields spike and the dollar soars:

“Our revels now are ended. These our actors,
As I foretold you, were all spirits and
Are melted into air, into thin air:
And, like the baseless fabric of this vision,
The cloud-capp’d towers, the gorgeous palaces,
The solemn temples, the great globe itself,
Yea, all which it inherit, shall dissolve
And, like this insubstantial pageant faded,
Leave not a rack behind. We are such stuff
As dreams are made on, and our little life
Is rounded with a sleep.”

― William Shakespeare, The Tempest

The economy is not strong. There are 100+ million adults not working (“not in the labor force”) out of a total population of 325 million, to say nothing of the myriad of government employees who are employed, but not contributing any value to the economy.

Consumption is being sustained by debt, both private borrowing and government money-printing. By January 2009, the United States had accumulated $10.6 trillion in debt. The gross national debt – just federal government debt – stands at $19.7 trillion as of the end of FY2016. Spending is on a pace to add another $2.4 trillion this fiscal year (2017), surpassing $21 trillion by next September. Krugman applauds, and of course this is Obama, not Trump. Yet.

Debt-funded consumption in excess of income has crowded out savings and therefore investment. As investment has declined, so, logically enough, productivity growth has fallen (see previous post). Simultaneously, government has been growing, making a lethal cocktail for real household disposable incomes, which have been declining for years. Pensioners who think they are in good shape are not noticing that defined-benefit pension funds are already starting to cut benefits and many, especially state and local government funds, are woefully under-funded. Social Security is in negative cash flow, and drawing on the general tax revenue pot to make up the difference. The stock market is ludicrously over-valued and promises zero or negative returns to pension funds for years to come. As Margaret Thatcher notably said “Socialist governments traditionally do make a financial mess. They always run out of other people’s money. It’s quite a characteristic of them.”

Powerful deflationary forces are being unleashed. The world is awash in oil and efforts to keep the price up will eventually fail. OPEC in aggregate will not cut supply because its governments (as well as the non-OPEC ones) depend on the flow of oil money to stay in power. I expect oil to reach the lower $20s if not below. Most of the world is engaged in a race to the bottom, cutting interest rates to devalue their currencies and boost exports. They are therefore exporting deflation to the US. I expect to see CAD in the 0.60s and the EUR in the 0.80s. Consumer price inflation in the US appears comparatively strong due to the inclusion of OER¹ in the CPI, which is not done elsewhere, and due to the uncontrolled rise in healthcare and education prices, funded by government subsidies and debt. These prices end up being a form of taxation by the 0.01%, who are on the receiving end. The protest vote in the US election should be no surprise.

OER, a completely fictional number to start with, is high as a result of low interest rates financing housing bubbles. These will end as badly as the previous lot. I choose not to be a homeowner, largely because I don’t want to face a huge capital loss.

In short, the economy is a Potemkin village. Things are not as they are made out to be. Even a fractional increase in rates may trigger a deflationary crisis, especially considering the shortage of dollar liquidity outside the US.

¹ OER, Owner’s Equivalent Rent, is weighted about 25% of the CPI basket. It is estimated by a telephone survey of selected homeowners, asking them how much they think it would cost to rent their a property like theirs.It has nothing to do with what it actually costs them to own and live in their properties.  I am not kidding. Now do you think CPI means anything?