Wednesday, February 23, 2022

Is Tunnel Vision Hiding How Bad Things Are?

As eager as many of us are to put Covid-19 behind us we as a society simply have not turned the corner. Mainstream media has us in a stranglehold as it continues what is news and how to report it. Not seeing the bigger picture is something many people seem to suffer from. It occurred to me the other day that tunnel vision may be hiding just how bad things are.  

I See Nothing - It Looks Alright To Me

A lot of the problems I hear about come from those around me during conversations. These have to do with things the mainstream media is ignoring or not putting into proper perspective. Whether this is intentional or proof the media gets a big fail for keeping us informed is up for debate. The one thing that is clear is they seldom address the ramifications flowing from the events they report and how one problem also compounds another.  

Another way to look at this is that it is becoming more difficult to reconcile all the lies and misconceptions floating around out there. Since most people are not deep thinkers, they seldom tie the consequences resulting from events together. It is necessary to do this to form a reasonable opinion as to whether something is good or bad. Simply taking the word of some babbling bias idiot from the news media has its drawbacks and adds to the dumbing down of society. 

All this has clowns coming out of the woodwork with predictions. Call them wild, call them pure speculation, call them anything you like. The one thing I do know is that they can't all be right and some will prove to be very very wrong. Some of these predictions are very specific, such as the one being thrown out there by Felix Zulauf. He claims we will see a 20% plus drop in the markets by summer, then a huge bull market lasting through 2024 caused by the Fed pivoting as we drop into recession. 

We even have some economy watchers putting forth the idea inflation is about to max out or will start to fall since the numbers are based on year-over-year figures. Still, it is difficult to discount other pressing issues that remain. One of these is what will happen to overall incomes with many people still not planning to return to work. Another has to do with the fact supply chains remain a mess and may get far worse if social unrest continues to spread. 

An example of this, hidden from much of America by the media is highlighted by how the Canadian truckers, protest has brought freight shipments in Canada to a standstill. Also, we  are seeing a substantial slowing in many countries and segments of the economy. Another thing we must look at is "liquidity," it is important to remember money is not distributed equally. If Fed tightening does occur, certain segments of the economy will suffer far more than others. 

Headlines twisted to give a positive spin on things, such as, "U.S. industrial production jumps in January on demand for heating" tend to mask the fact this is not good for most people. This headline just came across my page, while it sounds upbeat, it is economically problematic. In short, it means consumers are paying more to heat their homes and that they will have less money to spend on other items. 

It is somewhat amazing that in the last few days, the situation that has brewed so long in Ukraine is being used as the primary excuse for the market moving lower. More incredible is that people are accepting this, that narrative pushes away the bigger issue of the Fed tightening and raising interest rates at the same time the economy is slowing.

The one thing I do know is that most Americans are poorly equipped to handle the  economic storm heading our way. When things are too ugly to look at, people ignore them and choose not to "handle" the truth. So many people have accepted as fact five major economic myths that allow them to brush aside reality. They are; 

  • Government is for and by the people
  • Financial planning means you only have to start saving a little money each year to guarantee an easy retirement
  • You have rights and we are not slaves
  • Your life will progress and move along pretty much as you have planned
  • Those in charge or above you care about you and will protect you 
The ugly truth is pensions are bankrupt and so is our government, but we are not alone. In fact, in many ways America is still far better off  than many or should we say most other countries. The volatility we have seen in the market as of late has left many investors whipsawed out of their money and the worst is probably yet to come.  I see this as an indication we may be closer to the end of this euphoric bull market than many investors think.  Those that have been buying market dips should remember that markets climb a wall of worry but when they crash, it can come fast and furious.


 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Monday, February 14, 2022

Inflation Lowered By Investment In "Intangible Goods"

Inflation ahead will be contained in certain sectors of the economy. How much inflation we see is still up in the air. From a Main Street perspective, people and businesses are saying that inflation is here to stay and is not a short-lived or transient issue. Still, it is also important to remember that as supply and demand have taught us, what goes up can and often does come down. I contend and envision most of the inflation that takes place will be in hard assets and it will be the result of people losing faith in fiat currencies. 

When money is created or printed it has to go somewhere, and it has been fueling the "everything bubble." While feeding the "wealth effect" and inequality, a bubble is not necessarily inflationary. All this can be a difficult concept to grasp. The important point to remember is that everything is relevant and values and prices change. Up until now, much of the newly created money has not resulted in massive inflation. This is because it has been diverted from goods everyone needs to live and into intangible assets not included in the consumer price index.

The way people view fiat currencies way be about to change in a big way, they are generally a poor place to store wealth. To be clear, I view the dollar as the best of the four fiat currencies, however, I expect all of them to come under more pressure in the near future with the yen and euro being the biggest losers. The amount of interest in cryptocurrencies and other inflation hedges is an indication many investors are losing faith in the central banks and fiat currencies. The result may be a monetary crisis and chaos that shifts people into tangibles and a self-feeding inflation loop.

None of this means cryptocurrencies are the answer. This article is being written to point out our normal inflation model totally misses an important point. Most economists and analysts are oblivious to the point that with so many people willing to invest in intangible assets they have dampened inflation. By not buying tangible and real items people help minimize inflation. This is a very important part of the inflation puzzle. 

To many investors, the difference between these two very different asset classes has been blurred over time. An intangible asset is a useful resource that lacks physical substance. Examples are patents, copyrights, trademarks, and goodwill. Such assets produce economic benefits but you can’t touch them and their value can be very difficult to determine. These intangible assets are often in sharp contrast to physical assets like machinery, vehicles, and buildings. 

This Does Not Tell The Whole Story

Most tangible assets can be easily converted to cash, this is why most people include as "tangible" the amount of money in a bank account. Even though money held by a bank is a paper promise, it falls into a "grey area" in that it holds the characteristic of being rapidly converted to something real like property such as cars, houses, or boats. Some of these accounts can also be used as collateral in case you want a loan. 

Over the years investors have shown little resistance to being steered away from tangible assets. It is easier to own intangibles than deal with taking care of "real things." This could account for some of the mismatch in growth between these two kinds of assets. In our modern economy, another example of intangible assets, or at best, quasi-intangibles are shares in a company. When you buy what is known as stocks, what do you really have? You no longer get a certificate as in days of old, this should send the fear of God into those that worry about hackers. 

Owning stocks is very similar to holding a fiat currency in that much of its value is based on faith. What you get is a glorified memo in a computer base somewhere, good luck proving what you have if things go bad. Most likely even getting a government official to listen will be a huge task. If you do get action most likely it would be years before you get any of your money back. This is important when you consider the massive importance stocks plays in the overall economy.  

At the same time, it is also important to factor in the massive importance of other quasi-intangible "financial instruments" such as bonds, pensions funds, retirement programs, and more, play in our modern economy. Enough said. All of the paper and promises sold as assets remove inflationary pressure off the price of tangible goods. They also give us the warm fuzzy feeling we are protected from an uncertain future. Sadly, they are more of an illusion of security than things of substance. We often accept these substitutes for holding real goods because society makes it so doggone easy and even encourages us to do so. A major problem with assets that are not tangible is that they are easily prone to manipulation and are even capable of vanishing before our very eyes.  

Intangible Asset Growth Has Vastly Exceeded That Of Real And Tangible Assets

The chart above shows how over the decades the growth in intangible assets and the money supply has vastly exceeded the growth in real and tangible assets. This is problematic. Currently, the gap is so large that even if you allow for a great deal of the wealth stored in intangible assets to be washed away there will still be enough cash and credit available to create inflation. Ironically a huge washout in the value of this type of asset could be become a driver of inflation by igniting a shift into hard assets.

Time after time history has revealed how Ponzi schemes operate in plain view and are often heralded as a great investment until they are not. Adding to the problem with intangible investments and buying a promise is that so many of these transactions are now being done online and placed in the clouds.  This means many investors may someday pay a very high price for their faith in a financial and political system with a history of failing to keep its promises. For those fleeced out of their money, our rapidly failing, slow-moving, and expensive legal system seldom distributes justice.  

Circling back to the idea laid out in the title of this article where people place their money matters. The Fed, the government, and a lot of institutions love the fact so many of us are willing to accept paper and promises in exchange for our wealth. The problem is, these groups may not be in any hurry to return this wealth. As proof of how deep this is rooted in our system just look at the growth of the financial sector over the last few decades. On the other hand, obstacle after obstacle has been thrown and placed in front of those buying tangible assets. Just remember, not investing in "tangible goods" helps to minimize inflation but it also puts your wealth farther away from your control and that may prove detrimental to your financial health.    


 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Wednesday, February 9, 2022

Examples Of One Mistake And Your FUBARed

Over the year several of my articles have contained the theme that life can turn upside-down without warning. One moment you are on top and the next you are on the bottom and being treated like pond scum. Life can be very unforgiving. I write this in the hope someone reading this will take this message to heart or make an effort to pass it on to some young soul that is under the impression life is their oyster. 

The world is your oyster is a saying often told to young people about to embark on adult life. It simply means that everything is open to you and each day will bring with it new opportunities. With a bit of luck, the possibilities to create a great life are endless. The upbeat message flowing from this tends to downplay the darker side of life and the role hard work plays in getting us to where we want to be.

To be clear, one mistake in judgment or simply bad luck has the potential to become a watershed event that changes your life forever. This is something I have tried to pound into the head of those young people and it is a good reason to develop and exercise discipline throughout life. Over time discipline pays huge dividends, this is something many people fail to realize.

A lack of discipline is akin to a lack of focus, and a lack of focus often results in bad things transpiring. It is apparent in little everyday acts such as forgetting or losing your phone or locking yourself out of your house. It also extends to missing deadlines, being constantly late, and making promises which never get honored. While none of us are perfect, people with little discipline tend to border on dysfunction.  

The fragility of our lives is highlighted by the fact that one incident can have dire consequences. In many ways, society has never been so forgiving, that is of course unless you happen to get trapped in the system. In this case, I'm referring to the sticky bureaucratic monster put in place to corral and control each of us. 

The system has a way of not forgetting or forgiving us for what could be written off as minor infractions. A favorite of mine is how former President Clinton will always be remembered for saying, "I did not have sexual relations with that woman, Miss Lewinsky." It is amazing that politicians can lie, steal, sell us out, and heap all kinds of injustices upon us but this is the sort of thing we focus on.  

When I was younger I had several mentors. These people advised and helped guide me forward, sadly their advice was not always spot on. Still, several of the ideas they put forth have proved very useful and important, others proved problematic. We should remember even those we consider older and wiser misstep, also, what may have been good advice yesterday may not bring good results in the future.

If I may get philosophical for a minute here are a few thoughts about some of the things that matter, did you have fun getting to where you are. Living a full life rather than wasting it sitting on your hands generates a lot of interesting memories. Nobody will remember or care about you in 50,000 years. Still, with that idea in mind, remember that life is a marathon, not a fifty-yard dash. 

There Is A Reason They Call It Gambling
Two areas that people are prone to make toxic mistakes are in matters related to money and love. Both are a minefield. Choosing a good partner in life should be a priority, people that are more interested in taking than giving should be avoided like the plague. Another thing to avoid is the feeling good luck will protect you from your own stupidity.

Like most investors, I have been bent over and beaten up by various markets over the years. It is easy to get overconfident and forget there is probably one more unsuspecting twist in the learning curve that you simply forgot, or to underestimate just how corrupt and rigged things are when it comes to financial markets. The rules are made for them and not us, and they have no problem changing them at any time.

When things are going well it is easy to add a bit of leverage. Sadly, leverage is a double-edged sword that cuts you to shreds when markets turn against you. One of the best pieces of advice I have ever received is to put aside certain paid-for parts of your nest egg into an area marked, NEVER TOUCH! The "no touchy" strategy is based on the idea that it is far easier to reboot and move forward after a major setback if you do not lose it all. Starting over is both demoralizing and more difficult than most people think. 

Circling back to the theme of this article, one mistake in judgment or simply bad luck has the potential to become a watershed event, please take the short piece below to heart. It is an example that illustrates how making what could simply be one mistake can leave you FUBARed.

Picture Of Bomb Squad Cutting A Wire

Please note, Fred cut the wrong wire!

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Sunday, February 6, 2022

China - Expect Change To Bubble Up From Below

Events in China are already being influenced by the fact that in the fourth quarter of 2022, the Chinese Communist Party (CCP) will hold its 20th National Party Congress. With the 14th Five-Year Plan being drafted a great deal of attention is being paid as to who will carry it out. This is no small matter considering those trained to carry out the goals of the Party-State and disseminate and enforce the official indoctrination are most likely engaged in a ruthless power struggle behind the scenes. 

As the National Party Congress nears it raises the probability that China's reaction to things that occur in coming months will be rooted in politics rather than economics. Currently, China is struggling with a huge number of issues including the hosting of the Olympics. A resurgence of Covid-19 has complicated this. With the eyes of the world focused on China, everything is about politics and the one thing its leaders don't want is to be publicly humiliated or embarrassed.

Growth In China Is Rapidly Slowing
While America has squandered much of its wealth on its war machine, offshoring jobs, and by purchasing cheap poor quality consumer goods from other countries, China has its own sectors of waste. The country faces huge challenges when it comes to political, economic, and social issues. China has so many problems it is difficult to catalog them all and slowing economic growth is making things worse. Below is just part of the list.

  • Integrating Hong Kong into the mainland
  • The continued fallout from its zero-Covid policy
  • Tensions continue to escalate between Taiwan and the mainland 
  • Power shortages have become common
  • Corruption and policies that encourage poor quality growth
  • Pollution is a big problem
  • The currency, the yuan, is struggling 
  • China lacks the natural resources to support its large population  
  • Growing inequality 
  • The demographics of one child has resulted in an aging population 
  • It continues down the path of growing social control and repression 
  • It remains guilty of human rights abuse
  • And it is facing a collapsing housing market that will destroy wealth and savings 

The list above is why China cannot declare victory and the next five-year plan is so important. It appears China's goal of common prosperity and dual circulation has run into a wall. In short, China is not a "better place to be." Over the last several decades, the West has transferred trillions of dollars of wealth into China. Much of this has been poorly spent and squandered building ghost cities and bridges to nowhere. 

Then, there is the issue of One Belt One Road or OBOR. Emboldened by an influx of wealth from the West, China has played fast and loose with creating and loaning out new funds. China has lent trillions of dollars to countries. The Center for Global Development, a Washington-based think tank, has highlighted in a report entitled Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective, it underlined the problems of extending credit to poor or unstable countries. These loans have the potential to saddle weak countries with “excessive debt and low-quality projects.” The question has been raised as to whether this initiative will pay off or whether it is just a game Of Debt Diplomacy where China tries to put countries in a debt trap so it can steal their natural resources.

With growth in China slowing, it is predicted to grow 4.8% this year, down 0.8 percentage points from earlier estimates, it could be argued the country is facing long-term stagnation. Much of China's resources have been flowing into the wrong sectors of the economy, this is evident in the financial stress now apparent among its property developers. Another large factor contributing to productivity had been infrastructure investments based on planning, but the efficiency of these has fallen over the years. Part of this has been due to corruption and the incentive to just build it to promote growth.

Returning to the issue of the CCP 20th National Party Congress, this is where the decision will be made whether Xi Jinping stays for an unprecedented third term or his political power is neutered. So many cracks are beginning to appear in China's economy that it puts the leadership position in play. The notion Xi Jinping will remain in power is not carved in stone and his removal would signal a major change. Political fortune can change very quickly in Chinese politics, this is something most westerners often forget.

It is important to remember that China’s future institutional path depends on the relationship between its national system of economic development and the CCP cadre system. This cadre system is the most stable political institution in China and plays into everyday life. Those that make up the Politburo contention have waited their entire lives to receive the  political appointments they seek. They have served different factions and politically survived through decades of policy and institutional change. 

This Is A Problem!
Those wielding power in China are far from timid and most likely not blind to the failings and problems noted above. This is why China's strength must be questioned by people without an agenda if we truly wish to understand the world. It could be argued that only gargantuan credit injections have prevented a total economic collapse in the world's second-largest economy and only ever greater credit injections are keeping China alive. This underlines the fact that size should never be interpreted as strength.

Considering the difficult path China faces, do not be surprised if the change that comes, bubbles up from below. Such change often flows from necessity rather than choice and is not always good. Companies based in China also owe foreigners a great deal of money based on dollar-denominated agreements. Whether we are talking about Democracy, Communism, Socialism, or Fascism the strong link they share is one of dominance and a desire to control. Whatever changes in policies China chooses to undertake, expect them to be shaped by the desire to control. 


Footnote; Again, I recommend those wanting more of an "on the ground" view of China view the following YouTube video;

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)