Wednesday, January 27, 2016

Obamacare Can Kill You!

Higher Deductibles Equal No Care For Many
It is interesting how real life can bring truth front and center exposing flaws in policy. One such flaw in Obamacare and the effort to bring better healthcare to millions of Americans can cause your demise. It is a fact that across America there still exist people who are responsible and work hard, these people also pay their bills. This often means they think twice and often three times or more before rushing to create healthcare bills that they will have to pay. At the same time other people use and abuse healthcare for a number of reasons. This includes the psychological feeling of elevated importance or because they are lonely and it is the only time anyone pays attention to them.

While the President and those supporting the American Care Act (ACA) drone on about its virtues they fail to tell you it has probably taken more than a few lives of hard working Americans. If you are at a loss as to how Obamacare can take a life I will soon explain using as an example a real life story. Before, I take you there I must mention that during an interview on a Jan 24th talk show Hilliary Clinton stated we now have 90% of Americans covered by health-insurance. She should haveclarified the percentage means little, to be honest it depends on how you define "coverage." Clearly when to seek medical treatment is a personal issue, but the decision is often impacted by just what kind of coverage a person has. Obamacare has failed to drive non-emergencies to low cost options and we are paying the price.

Today many people have coverage with a deductible so high that they are afraid to use it. In some ways this is akin to having no coverage at all and this poses a massive problem. In many ways many people today suffer the worst of both worlds, not only have premiums rocketed through the roof, but soaring deductibles have made using the coverage a gamble and a painful experience. Horror stories abound as to the cost of medical bills and how just a few hours of care or a short emergency room visit can quickly generate a bill costing thousands of dollars. These high deductibles are a trap set to create bills many people are forced to pay on top of  their already "bone crushing" premiums.

Many ER Visits Are Unnecessary 
Ironically someone paying very little because of Obamacare will rush to the emergency room when they break a finger nail (minor exaggeration) while many people responsible for their own bills hang back in fear they will take a financial beating. The bottom-line is that those supporting Obamacare are delusional if they don't think the sky high deductibles facing so many Americans today are not discouraging them from seeking medical treatment. High deductibles are keeping people away from hospitals and emergency rooms in huge numbers. This extends to times when even their lives are threatened.

The unintended consequences of Obamacare played out in a true story about someone very close to me proving my point, and this I know as a fact because I drove them to the hospital. One night in serious pain this person finally entered the emergency room after sitting in my vehicle for about 30 minutes waiting for the pain to subside. It came in waves so she finally conceded to the idea it was not a silly quest and succumbed to the heavy pressure upon her chest. After about an hour and several tests they found nothing. Of course they advised her to be admitted for more tests, but feeling rather silly and much better she declined. Isn't spending an estimated two thousand dollars enough to be told nothing.

Interestingly, the next night the same song began to play, again after sitting outside the door we took it to the next level and finally entered. This time a heart attack was confirmed and it was go time, or should I say, almost go time. By ambulance she was shifted off to their regional center 20 minutes away where after being stabilized she waited for hours as they kicked several patients ahead of her. They were playing the "triage game" which in medical terms means assigning the order in which treatment is given based on the degrees of urgency to wounds or illnesses. It was only during surgery they discovered she was lucky the bomb within her chest had not exploded and if it had she most likely would not have made it. 

Her blockage was in a blood vessel called the left anterior descending artery, the area that causes a fatal attack known as the "widow maker" because of its severity. It is important to note while this was happening she only appeared stable and before entering surgery they did not know just how dire her condition was. It seems that luck is indeed a big factor in healthcare just as it is in Russian-roulette. Understand some of us take pride in not only resisting visiting both doctors and hospitals, but fight such action tooth and nail. Call it stupid pride or stubbornness. It often seems much of the healthcare system would vanish if people used better judgement and were more responsible. An example is how the father of a friend went to the emergency room because he could hardly walk due to pain radiating from his feet. After several tests the diagnosis that his new shoes were the cause of his pain proved correct.

On the completely opposite side of the spectrum I remember a time years ago when I seriously thought I was having a heart attack during a sales call so I quickly excused myself and went to my car to avoid collapsing in my customers office, it turned out to be a false alarm and I never bothered to see a doctor. While several things can be taken away from this article one thing is certain, and that is our healthcare system leaves a lot to be desired. While a basic single payer system may not be ideal, because it would mean healthcare would have to be rationed in someway, if we want to be realist it sure as hell would on average be more fair than what we have today. Of course any system needs to be structured to bring in more personal responsibility and also allow people financially able to buy supplemental and deluxe coverage if they like.

Footnote; Below is an article that delves into how the healthcare system in America is broken. Washington may be underestimating how many people are dropping coverage regardless of the rising penalties.  Americans simply cannot afford to buy what is being served, what may prove even more problematic is if people quit their job and move onto the government rolls. Obamacare is a system that may collapse under the weight of soaring cost.

Sunday, January 24, 2016

Japan's Strong Economic Link To China

Japan And China Economies Linked!
As the year began Japan's political and economic leadership announced a new resolve to further stoke consumer prices. This could fuel expectations of yet more monetary stimulus. A Reuters article titled, "Japan Leadership Pledges Bolder Steps To Hit Price Growth Target" reiterated the statement recently made by Haruhiko Kuroda, the Bank of Japan Governor stated, "We will do whatever it takes, and I want to strongly say we will absolutely meet our 2 percent price target."  While this again confirms their intent and policy it does not constitute a real change.

For years the Japanese government has made every effort to halt the deflation Japan has suffered from since the late 1990s following a property bubble that burst earlier in the decade. Still, recent comments indicate the resolve to halt deflation remains strong. With the recent fall in oil prices, their efforts should be very interesting to watch. Abe contends whether inflation accelerates depends on major capital expenditure and wage growth as he continues his efforts to pursue companies to invest more to sustain a virtuous cycle of consumption and growth. Japan's core consumer inflation was 0.1 percent in the year to November, rising for the first time in three months. A separate BOJ index that excludes oil and fresh food, but includes processed food prices, showed consumer prices rose 1.2 percent in the year to November.

Japan's industrial production continues to struggle and final data from the Ministry of Economy, Trade, and Industry showed it dropped again in November. The inventory ratio advanced 3.1 percent versus 2.9 percent increase estimated previously. At the same time, capacity utilization dropped marginally 0.1 percent in November, reversing a 1.3 percent rise in the prior month. Year-on-year, utilization slid 2.6 percent. The tertiary industry activity index dropped 0.8 percent in November from October, when it climbed 0.7 percent. On a yearly basis, growth in tertiary activity slowed slightly to 1.3 percent. Slice and dice the data as you want, but three years after Abe swept to power pledging to revive the economy with his "Abenomics" stimulus policies growth appears dead in the water.

As for the few positive signs of recovery for Japan’s slumping economy, foreign tourism remains a ray of hope. Tourism authorities, local governments, industry players as well as retailers are eagerly awaiting another possibly record-breaking surge in Chinese tourists due to the weak yen, but a tourism boom alone won’t bail Japan out of its economic plight. This means the BOJ may again be forced to lower its consumer price forecasts which many see as a precursor to the argument that extra stimulus is needed to prevent the price trend from worsening. Up until now all the massive pump priming by the government and monetary stimulus by the central bank have failed to meet the goals of reflating the economy or generating growth. Now it seems bad news flowing out of China is about to further undermine Japan's hopes for growth.

Chinese Protest Highlights Distrust 
A matter that might not be garnering enough attention or has been discounted is how the economic problems that continue to develop in China will spill over and affect Japan. The Japanese economy is very vulnerable to a negative feedback loop that could have strong ramifications on its economy. Even with a strong distrust possibly a dislike between the people and cultures years ago the two countries have joined together in an effort to maximize profiting from exporting to America. Throughout the 1980s the Japanese economy grew rapidly and appeared to be poised to surpass the United States. Then as the Japanese economy tanked into its lost decades, with the help of American investment China in stark contrast went forward in what seemed like an unstoppable economic rise. Over the years the interdependence has intensified, China and Japan have become major trading partners.

Japanese direct investments surged and Japanese technology played a critical role in the development and competitiveness of China’s global supply chains. A strong link exists between China and Japan because over the years Japanese businesses have made a major investment in China. It is clear China has exploited this relationship to learn the advanced industrial skills and production techniques of its neighbor. At call centers in China, young workers speaking flawless Japanese answer customer service calls for a Japanese insurance company. In western Japan, a new commercial Chinatown is rising in Kobe City's rebuilt port area. Instead of the gaudy restaurants in old Chinatown, the new area contains nondescript office buildings that are leased to Chinese companies focusing on everything including biotechnology. In part, it has been this increased trade with China that has bolstered the Japanese economy while cheap imports from China have driven costs down significantly for Japan's long-suffering consumers. Ironically, this has also played into the deflation factor.

While the mutual benefits derived from economic interdependence would seem to indicate all is well, but this is far from the case. Currently, Asia is the manufacturing hub of the world and it is clear as China devalues its currency all the other countries in the region will follow suit in order not to jeopardize their competitiveness. A slew of active disputes exists over territory, over blaming each other for a history of transgressions, as well as suspicions related to future military goals. This tight relationship is apparent each time trouble surfaces in China the yen jumps in value as wealth in a stealth move flees China often through business back-channels. This should not be misinterpreted as the yen strengthening, but rather a temporary bump before the wealth moves on to an even safer place. The question remains as to how well the two countries will continue to fare as economic stress and pressures build. Expect problems as each country tries to keep their economic boat afloat.

Footnote; July 22. 3016 An article appeared in the Nikkei Asian Review describing how Japan and China are locking horns over a high-speed rail link slated to connect Singapore and Malaysia in 2026 after Beijing beat out Japanese competition for a similar contract in Indonesia last year. the link is below.

Davos In The Spotlight!

A Gathering Of Powerful-brokers And Public Servants?
It is that time of year again when the rich, powerful, and well-connected migrate to Davos for the annual meeting of the World Economic Forum. I feel such a large gathering of those who "call the shots" merits a bit of sound reflection as to the possible ramifications for the world. It is important and prudent that we at least weigh in on what they plan to do with us in coming years. Around 2,500 participants from more than 100 countries, including 40 heads of state, will attend the event formally known as the 2016 World Economic Forum. This year, the theme is "Mastering the Fourth Industrial Revolution." Some of the key issues high on the agenda are involuntary immigration, extreme weather, and climate change, geopolitical conflict, terrorism, sustainable growth, as well as how robotics and other trends will play out and mold the world in coming years.

Davos, Beautiful, Serene, And Expensive
The tiny town of Davos, Switzerland with a population of just over 11,000 sports a very cold below zero average temperature in January. It has been the location of this annual event for decades. Aside from tradition, a major factor elevating this beautiful and serene setting to be chosen as the site hosting this event is security, it is far easier to secure a small town wedged between the mountains than a conference center in a big city. This is very important to the 40 heads of states that are attending. Organizers don't release specific information, but it is estimated that around 5,000 of the finest Swiss troops, police and security personnel guard the town.

Switzerland is famously expensive, and this extends to the WEF and Davos. To start we are talking about the ticket which is around $20,000 and that's just the tip of the iceberg. Travel generally cost thousands, and sometimes tens of thousands as private and government jets descend on the area. Then there is the cost of lodging, a night in a medium-range hotel is around $600, but such accommodations will not do for many of those attending the event. When we add to it wining, dining, and essential accessories like snow boots, the total bill can quickly exceed $40,000. To our so-called "public servants" getting invited to an all paid trip to Davos is the golden ring.

As to who attends this exclusive event the gathering often includes nearly everyone who matters in the world of business. Bill Gates will be there, as will Mary Barra, Satya Nadella, Jack Ma, Eric Schmidt, Sheryl Sandberg and dozens of other CEOs. This will give them face time with the IMF chief Christine Lagarde, with ECB President Mario Draghi and the governors of 10 national central banks. The U.S. will be represented by Joe Biden and John Kerry. Loretta Lynch, the U.S. Attorney General, is also coming, as is Penny Pritzker, the Secretary of Commerce. The King and Queen of Jordan will be there, as will Bono, Leonardo DiCaprio, Yao Chen and As usual, the whole bunch will be closely followed by a massive group of journalists hoping for interviews and a moment in the spotlight.

As noted earlier organizers of this premier gala pull out all stops to insure a safe conference.
  • Security includes two surface-to-air missile systems.
  • About 100 of the 2,500 participants get special security coverage.
  • Attendees will be hemmed in by 46 kilometers of fences, 10 percent more than a year ago.
  • Zurich Airport will contend with about 1,000 additional plane and helicopter takeoffs and landings during the meeting.

This Bash Includes Parties to cajole and influence
Each year as this "ultimate extravagant" unfolds I seem to get a pain in my stomach that some might consider envy, but having attended my share of events I consider it more of a sickening feeling related to the over the top self-importance of many attending. It often seems my angst is directed mostly at the politicians and such that have their travel expense picked up by governments. How ironic that we pay the same clowns that create so many of our problems to gather in luxury to discuss their deeds. I find it so interesting that someone flying across the globe on a private aircraft can sit down and discuss their environmental concerns and how each of us must do more to save the planet.

I should add this giant high dollar bash also includes the parties needed to cajole, influence, and build future connections to insure a good spot at the table in many coming events. The topics holding the spotlight often are focused on issues related to wealth, whether it has to do with stock price swings, bonds, or commodities. The distribution of societal benefits tends to take a backseat to those at Davos. This year it seems participants are getting a little jittery with several world events such as Donald Trump rising, oil prices falling, and economic growth slowing in China. This means that many of the people attending have a great deal of interest in keeping the good times rolling by pseudo-economics, hocus-pocus, or any other policy that extends the good times.

Already reassuring words are being cast out over the airwaves to us, the minions of the world. For example on Saturday IMF chief Christine Lagarde said the Chinese economy is unlikely to see 'hard landing' and it would be in the interest of the world that China returns to a sustained growth path,  Lagarde also indicated the fourth industrial revolution currently underway would bring about major change in the world and would require change in the way GDP is calculated. With such a startling and revealing statement it is no wonder she is hailed as a world renown financial leader. If I sound cynical it could be because I suspect this is not for our benefit, we are just given the honor of paying for it in some way or form.

Footnote; This is an extension of a topic I have written about before. I do not hold in high regard those in Washington and across the world who love power and access to the public purse. It seems they can always come up with a justification for the outlandish and the absurd, to those making the rules, the cost is often not relevant. The takeaway is, of the many choices we make worse things could happen to you then becoming a "public servant" 
It is not uncommon to see our public servants, some as low as a mayor or agency head climbing out of a limousine, being wined and dined, or on an exotic visit or fact-finding mission, all paid for by the taxpayer. The article below looks into whether these people are really public servants or the new elite.

Wednesday, January 20, 2016

"FOG Of War" Describes Economic Outlook

An Economic "Fog Of War"
We are currently in a state equivalent to an economic "fog of war" where it is difficult to see clearly what is happening before us. The world is experiencing a record amount of wealth shifting around within the global financial system. Money is crossing borders in growing amounts in an effort to escape risk. This is adding to the general confusion as commodity prices continue to fall. As the decline in asset prices becomes more apparent the fear that contagion risks are soaring will move forward and take center stage.

Each day it is becoming more obvious the main goal of QE was to bolster and prop up the underlying value of assets that feed into and support the massive derivative market. They have allowed this to take precedence over the economy. Since 2008 the central banks knew an implosion of derivatives and the resulting contagion spreading from it would indeed bring the whole financial system crashing down. So far the actions of the central banks and government stimulus has delayed a massive economic Armageddon, but by not addressing the real issues and causes at the root of our problems they have only put off and set back the event.  A complacent public will eventually be shocked to find they must shoulder the cost of these policies that will come in the form of an economic reset and financial trauma.

Interest Rates Verses Government Spending
Over the last few year countries and central banks have transferred private debt and bank debt on to the backs of the people as public sector debt has soared. This means governments need markets to go ever higher or it will become evident they cannot pay interest on their debt. When the markets drop we will see a big fall in government revenue and deficits will soar far beyond current predictions. As economies across the world continue to slow we should ponder what sectors will provide the growth we seek to propel us forward. It is becoming clear that artificially low interest rates and massive amounts of money poured into the system have not given us the kick we need and if anything they have only compounded the hazards ahead. Stated as simply as possible, we have cars, we have houses, we have smart phones, and we have more money being spent on healthcare than ever before. What we do not have is solid sustainable private sector job growth. We continue to see massive government spending across the world as the key support behind the global economy.

In March of 2014 I wrote about how everyone paying attention knows that the size of the derivatives market dwarfs the global economy. Paul Wilmott who holds a doctorate in applied mathematics from Oxford University has written several books on derivatives. At the time Wilmott estimated the derivatives market at $1.2 quadrillion, to put that in perspective it is about 20 times the size of the world economy. The world’s annual gross domestic product is around 55 trillion dollars. This large poorly regulated market and the contagion associated with it remains the Achilles Heel  of the world economy. The fact is today many of these financial arrangements are related to cross border investment and currencies.

Many of the bets placed in the financial casino known as the global market are shrouded intentionally or merely by the nature of the transaction. This can easily move them into the area of "carry trades" or some other highly leveraged trade that slip into the area of derivatives. Derivatives fall into many categories from futures, options, credit default swaps, and any complex combinations of these. They can also be used to wager, bet, and spectate on a market move or direction. Regulation is difficult and spotty at best in that a derivative transaction in one country might be considered a simple spot trade in another. Many of these transactions that appear on the surface as simple are in reality a bet on a bet on a bet. Remember this is only part of a much larger market that includes hundreds of trillions of dollars in non-reported agreements and private contracts.

Through the fog we must recognize that nothing can be more disruptive and destabilizing to an economy than cross border money flows and the carry trade. Both these practices have dramatically increased as the central banks of the world have engaged in the mass printing of money and keeping interest rates artificially low. Such an economic environment screams for gamblers to come forth and enter these games in search of quick gains and easy money. In reality much of this is totally out of the control of central banks, or that of any regulatory agency, but because of their actions it goes on everyday. Also, troubling is the people making money in the process of structuring and selling these agreements often play fast and loose with the value of the collateral backing them or flat out lie about it.

In the financial markets of today things have grown far less transparent due to speed at which transactions occur and the complexity of our modern world. Often when we look behind the curtain we find the products of sophisticated traders are highly leveraged and stack layers of risk upon the huge amount of risk that already exist. When we mix in the impact of derivatives and its sister the "shadow-banking" sector we find the water gets really murky. The policies of recent years have set the stage for a scenario of where the dominoes begin to fall. Recent moves of central banks entering equity markets and government pension funds becoming big buyers of stocks speaks volumes as to how the red flags of caution have been totally ignored. Bottom-line is the fog before us could be hiding a big black hole ready to suck us in.            

Tuesday, January 12, 2016

State Of The Union Is One Of Disgust And Anger

A Chance To Inspire?
The State of the Union is one of disgust and anger. Many Americans continue to grow weary of President Obama as his continued promises often fall short and never seem to gel or come to fruition. Promises of gun control, immigration reform, and a healthcare system that works for all of us are just a few examples of where the President and Washington have disappointed America. Cheap tricks used in the past like pointing to a special guest, "an average American" brought to Washington as a "visual prop" as proof that policies are paying off for the masses can only carry us so far. This year it has been indicated a chair will remain empty to signify and represent all those killed by guns.

In truth some Americans will view the empty chair more as a symbol representing all the Americans absent or wanting to remain absent from hearing the same old lies and watching a slew of clowns constantly rising to applaud and pay tribute. The rejection by the American voter's of the two Presidential candidates expected to represent the two political parties and "all things Washington" is an indication at just how far the angst has grown. On Sunday morning Donald Trump said on Meet The Press that "the State of the Union is a mess" and many Americans appear to be in total agreement. One thing is clear, and that is we do not need to be lectured on how too many people die from acts of violence or how the education system has failed to provide kids with the skills to become productive citizens.

The Speech Remains A Dog And Pony Show
Trump's interview was followed by a segment on the SOTU where a White House spokesman talked about how the country was surging and how optimistic things were looking. He indicated that we may see a spin placed on the annual speech that takes it away from the endless traditional "wish list" format we have come to know. He then went on to hint that the President might instead attempt to paint a vision or picture of what he wants America to become. Ironically to a divided, cynical, and polarized America such a speech may be viewed more as a self-serving attempt to shape and cement his legacy rather than an effort to report where America is and the real challenges before our nation. It may be a different year, but for many Americans including those who elected this man hoping for positive change it feels like more of the worst.

In a nut shell when we inspect the economy of America, huge growing deficits, a weak recovery, and a questionable future cast an ugly shadow over the promises that have been made. During the last few years the people of America have been spectators to scandal after scandal from the nations capital. Crony capitalism seems to have run wild and revelations that the NSA was busy taking tens and tens of billions to spy on each and everyone of us has done little to reestablish faith and trust. Not only are conservatives unhappy about the compromises made by their representatives, but many liberals see any attempt of those in Washington to achieve a grand bargain not as confronting problems but as a "grand betrayal" of promises made to help what they see as societies most vulnerable.

Regardless of whether Obama puts out there a big vision, small vision, or no vision expect reality to quickly suck the air and energy out of the room. When it comes to political inaction the Presidents promise for more governing by Presidential edict has stirred the blood of those on both sides of the aisle. Unemployment and poor quality job growth remains a major issue. Washington remains polarized  and we have failed to resolve problems in and with North Korea, Iran, Egypt, Afghanistan, Pakistan, Syria, and several other countries. Obama loves the spot light and he has logged in more camera time than any President in history, but many people will simply tune him out because of over overexposure.

One thing we can expect to see embraced is the call for more infrastructure spending that people are always promoting as the best great idea. How quickly they forget we do not have the infrastructure of a third world country and this kind of spending is not a silver bullet but in many cases merely a pipeline to wasteful spending and a way to line the pockets of those who oil the wheels of our public servants. Our constant search for an easy and painless answers guarantees we will embrace and line up behind more boondoggle projects that expands governments influence and undercuts free enterprise by competing with it on many levels.

Following the speech supporters will praise the President and call it grand, as always we hear some pundits babble about how a new page has been turned while others will talk about how they are disappointed. In the real world a bigger issue of concern in the strength of America going forward both economically and militarily. With many countries in turmoil and China seen as a rising military power a real fear is growing that America may be in decline.  It is fortunate that our political system always allows for ample room for finger pointing and the placement of blame. In short prepare for more of the same. 

Sunday, January 10, 2016

Lotto Madness Unleashed!

What A Billion Dollars In Cash Looks Like!
The failure of anyone to win America's largest lottery ever has caused the Powerball jackpot to soar over 1.3 billion dollars and it is still climbing. This has created a phenomena called "Lotto Madness" to spread like fire and sweep across America. This reveals something very significant about our culture. While this might not reach the level of needing a post event "debriefing" a closer look at how these large lotteries affect our culture may be important and meaningful. A close inspection of how people react to the idea of winning a large sum of money exposes more than a few flaws in our values and the way we think. It seems that society has reached the point where it thinks the road to riches is not through the valley of hard work and savings and that we can by-pass the important area known as sacrifice.

Family Guy Wins The Lottery!
When we have a large jackpot, lotto madness can even extend into the media and influenced television shows like the animated comedy "Family Guy." During one of the big payouts years ago, an episode had the Griffin family living on a strict budget until a local news story on the lottery influences Peter to buy a ticket in hopes that he will win and set the family on a better financial platform. In fact, Peter reveals to his family that he has not bought just one, but several thousand lottery tickets, admitting that he has taken out a second mortgage on the house in order to buy them. After watching the results of the lottery that night, they discover that they have indeed won it yes, they have obtained the American dream.

When weekly periodicals are placed as inserts in Sundays papers across the nation with front page revelations of comparison incomes comparing salaries.  An athlete making $15,900,000 a year, next to a government employee making $130,000, a CEO at $120,000,000 a year, and a business owner at $24,000 dollars a year causes pause.  No wonder we as a society are totally screwed up as to how we value and relate to money.  We must question our values, we must question the fairness of such inequality. I feel it is hard to measure the discontent generated by such fluff pieces and irresponsible articles like these that are often inaccurate or fail to tell the full story.

It is clear that many people feel the trade offs we face by living in a free market-consumer based society and it wears away at them. The fact is economic growth is accompanied by  “wheel spinning”, inefficiencies and waste.  While the benefits of our system often outweigh the negatives we find society is paying a toll through increased rates of addiction, depression and economic inequality.  On the emotional side, many people are not achieving the degree of being content or happy they had hoped for and are left with feelings of insecurity. This all contributes to the phenomena of people going totally bonkers and off the deep end at the prospect of winning a great deal of money even if the odds are massively against them doing so.

Government sanctioned gambling and especially lotteries send a message to the populace that conflicts with many important cultural values and can have far reaching effects. These messages promote a "let it roll" mentality.  Simply allowing such activities and promoting them are two different issues.  The government has climbed into bed with the devil to gain revenue from taxing these activities.  Gaming does not benefit the average man.  Truth is the laws of nature and the odds are against you, that’s why they call it gambling and not winning. It might be interesting to place more focus on how many people suffer post lotto depression when they are unlucky enough not to win.

Huge sums of money from lotteries are unmanageable by the average man and often cause adjustment difficulties, resulting in pain and not happiness.  Large jackpots also result in a disconnect in true and associated values causing unrealistic expectations.  Thoughts that jackpots in excess of one hundred million dollars can be ours gives a false impression of reality that is harmful in cultivating positive work ethics and makes a mockery of those who toil to produce a better life. In the past, some winners have used the line "be careful what you wish for" after having their life turned upside-down and disrupted by good fortune. The infamous Jack Whitaker is often quoted as saying he wished he had torn up his ticket after he was afflicted numerous times by the "lottery curse".

Our modern consumer based society has made us slaves to material objects and producers of waste.  Many economists urge us to consume, even when we must borrow to do so, saying it creates ever more jobs. We follow Governments and leaders that we often neither like nor trust.  Today’s youth growing up besieged by marketers are now vilified for being materialistic, marred by too little perspective, they find themselves angry and disappointed. During the latest lotto that sported a massive well-publicized jackpot people used money that was intended to be used to pay rent and even the food stamp money given to them by tax payers to buy tickets. Bottom-line this is indeed madness.

Saturday, January 9, 2016

The Great Reset! Has It Begun?

In 2014 Markets Made Historic Highs
With every market pullback as of late, we are forced to wonder if this is the beginning of the end. Have we entered the period that may someday be referred to as "The Great Reset"? This is the period where after decades of modern monetary theory the world reverts back to the tried and true. Over the years the valuations of many stocks and commodities have gotten out of hand driven higher by financial forces unleashed by monetary policy that has expanded both credit and debt to a level that a decade ago many economists would never have imagined. I want to make it clear this has become a worldwide problem. With all the distortions from things like computer driven trading, dishonest economic data, and stock buybacks it is only logical that at some point in time reality would re-enter the picture and set things right.

Selloffs Take Many Forms And Shapes
This reset can develop in several ways and it will be interesting to watch how this unfolds and the market unravels. What will ultimately be declared the driving force behind its demise will be equally fascinating. During the bull market of the last seven years, it seemed that even bad news was good news in that markets would rally and rise indiscriminately. It often appeared that any indication things were not well was interpreted as proof the Fed and central banks across the world would soon step in to add a little fuel and give the economy a badly needed kick. When it comes to a falling market, however, the market can fall like a stone or in the case of a "realizing market" slowly grind its way downward. The slowly downward and bone grinding action of a realizing market tends to go on forever and a day with no respite.

Have We Ventured Into Bubbleville?
 Most investors have divided into two distinct camps over the last few years with the bears thinking the bulls are delusional and the bulls thinking those constantly heralding the coming gloom and doom should pack it up and head home. Of course, each camp has fringe factions that vary in the degree of their convictions. Mega bulls continually point to the upside and how those not in the market will miss great opportunities, while mega bears preach caution, advise risk aversion, and warn of the coming financial Armageddon. It is easy to rationalize why those in power cannot afford to let financial markets to collapse, however, preventing such things is easier said than done. History is filled with examples where greed has guided investors down the path to Bubbleville and always they are encouraged to follow because they are told: "this time it is different." Sadly, again time will show that it's not different at all.

Often investor psychology and the behavior they display is based on recent trading patterns. In this case, many investors will react and "buy the dip". For years this reaction to each pullback has worked and garnered huge profits for many investors, but this trading strategy has the potential to cause them a fair amount of pain. Bulls trying to buy pullbacks and pick market bottoms time after time may soon find that more downside action exists. Ironically more than once I have heard a person talk about how they plan to short this market when it tops, but the fact is they won't. It is very hard to pick a market top, but if anything they will probably assume the role of buying into a falling market and getting sucked into the vortex well before the fall has stopped.

The term "capitulation" which in market terms means to surrender or give up is often used to mark a top or bottom in markets. It is often important to ask not only who is capitulating, but why. Over the last several years it has been the bears and those who saw every morning a market ready to collapse under its own weight that have ended their day in tears. It is also these same bears with their tightly placed stop-loss orders that have paved much of the path this market has made to higher and higher levels. It will be interesting to see just how many of these beaten up souls still have enough fight inside to ride the markets lower when their time to shine does occur.

If you are bullish and see higher markets ahead even though this move is long in the tooth by historical standards it is important to question not only where growth will come from, but also it's quality. Throughout history, the world has witnessed and undergone many resets. The coming adjustment will come and it will most likely be ugly and often volatile. Market crashes  generally are the result of panic and so far what we have seen is more on the level of "minor concern" resulting in a chorus of cries to buy the dip. It is only after the market blows through several key support levels and starts making what some people view as crazy new lows that panic will set in, and by that time it will be too late to escape the carnage.

Friday, January 1, 2016

Has The Power Of Low Interest Rates Been Played Out?

It is interesting to speculate what might of happened if Paul Volcker had not nipped inflation in the bud back in 1980. By the end of the 70s inflation started to soar by taking interest rates to nose bleed levels then Fed Chairman Paul Volcker brought inflation back under control. Paul Volcker, a Democrat was appointed as Federal Reserve chairman by President Carter and reappointed by President Reagan. Volcker is widely credited with ending the stagflation crisis where inflation peaked at 13.5% in 1981. He did this by raising the fed fund rate which averaged 11.2% in 1979 to 20% in June of 1981.  This caused the prime rate to hit 21.5% and slammed the economy into a brick wall.

At Some Point Low Rates Lose Power To Stimulate
This also has had the effect of shaping the level of interest rates for decades. The dollar being the worlds reserve currency means his actions affected rates and policies across the globe. Raising interest rates in real terms far above the rate of inflation makes money or capital more valuable and tends to decrease speculation and focus the allocation of funds to where they are most needed. High rates punish borrowers and rewards savers. it also forces countries and people to live within their budget. Those who overspend and find themselves in debt pay a heavy price with their rates increasing as their credit rating drops.

The high interest rates of distant years also positioned those in power with an "ace up their sleeve" and a way to to boost or stimulate the economy at any time by loosening or lowering rates. The ace of lower interest rates has been played time and time again over the decades and it appears its power to bring consumption forward is about played out. To those of us who years ago never envisioned the super low artificial interest rates of today it is most ironic to see the concept of negative rates proposed in an effort to continue milking this effect. Sadly, when low rates are coupled with a massive expansion of new money creation, growing credit spawns debt that at some point overwhelms us and cannot be repaid. At that point this policy yields diminishing returns and has been compared to pushing on a string. This causes me to ask, has the power of low interest rates and all the benefits garnered from them been played out?

Government Debt Has Soared As Rates Fell!
While on the surface the answer might be yes, it is necessary to consider the side affects of these policies have also done considerable damage that might prove too much to bear. Unfortunately, as the experience of rising rates fostered upon us by Paul Volcker proved years ago higher interest rates bring a great deal of pain to those who have borrowed too heavily by magnifying their burden, this will likely again be the case. In the 80s high interest rates halted inflation by ending the explosion of credit expansion and new debt. However, today bankers and financiers have complicating the economic landscape by creating a slew of new games and tools by which they play and dabble in the art of procuring wealth. Derivatives, high leverage investments, and a number of carry traders have again expanded debt and become intertwined in a mass of obscure and tangled schemes that could at anytime begin to unravel.

Predicting Inflation A Difficult Task!
Interestingly the "inflation or deflation" debate that central banks often claim drives their QE policy continues. In the past I have put forth a theory that inflation could rule the day even if central banks are unable to keep the wheels on the bus and the economy collapses. This theory is partially based on and dependent, on which way the dominoes fall if a collapse does occur and how much money survives looking for a safe haven. When inflation hit Germany during the 1920s history shows the worst of the inflation hit came over a very short period. I remember pondering at the time that it was amazing how quickly inflation took root and if a similar scenario were to unfold today it would be prudent to factor in just how fast it could happen now that we live in an age of instant communication.

Today those who see inflation in our future are back on their heals and off balance as many people point to falling commodity prices as proof deflation is at our doorstep. To those in the deflation camp this removes the possibility that prices might soon soar as a result of the creation of massive amounts of newly printed money. A word of caution, in a complicated world future inflation is difficult to predict, we should not be deceived or led to believe that lower oil and commodity prides will in themselves bring about deflation. Often falling prices in both commodities and goods reflect a lack of demand or temporary supply imbalance that will correct itself. When that happens prices tend to rapidly adjust to what I will call the "new reality of the day".