Advancing Time: The Powerful "Think Tanks" We Seldom Think About

Advancing Time: The Powerful "Think Tanks" We Seldom Think About: Most of us have given little thought to Think Tanks. This includes their purpose, how they are funded, why they exist, and those pulling the...

The Powerful "Think Tanks" We Seldom Think About

Most of us have given little thought to Think Tanks. This includes their purpose, how they are funded, why they exist, and those pulling their strings. These organizations are well entrenched in Washington and most of these think tanks operate 100% in the dark.

Sometimes are lack of pure attention or simply misreading a headline or title results in taking us down a road we might have not taken. Recently, I misread the title; "WTF Do You Think Tanks Actually Do?" Thinking it was referring to the use of tanks and their role in warfare I decided to take a closer look. I expected to find something about tanks being used as line breakers, like shock troops or heavy cavalry in ancient/medieval times. Instead, I found information about Think Tanks and their role in creating public policy.

It was reported near the end of 2021 that the United States now has 2,203 think tanks, a more than two-fold increase since 1980. These institutions generate new ideas for policy-making, assess existing policies, and draw attention to neglected issues. Much of the work Think Tanks do is done behind the scenes, off the record, or in briefings that are not touted publicly. Part of the reason many avoid the light of day is they operate to simply justify every and anything for money. 

Think tanks take donations and then generate the reports and studies that inform and influence the government and those making our laws. Their expensive studies could be described as "vetting the truth in the name of profit." This is a slippery slope. The reports, data, and information they generate often dominate the laws Washington imposes upon us. This should be apparent from the fact they often write a great deal of the legislation. 

In some ways, Think Tanks are, the government lobbying the government. Many of those people taking jobs in Think Tanks are paid very well and are former government employees or politicians. It could be argued that Think Tanks are, the government lobbying the government. With reassuring names such as the. "Institute For The Study Of" or The "American Foreign Policy Council" these groups formulate road maps going forward.  

Their input shapes the future of society and our culture carrying with them huge ramifications. Think Tanks are often used as weapons in the battle for our hearts and minds. About eight and a half minutes into the video that took me down this road, the producers of the piece give an excellent example of just how much this matters. Big Pharma, agriculture, the fast food industry, and weapon manufacturers, all huge sectors of the economy, use Think Tanks to skew information that promotes their goals.

Sounds Like, "Power And Money"

The work done in the shadows paid for by the highest bidder should concern all of us. The information I garnered from the road I inadvertently stumbled down was a bit disturbing. Much of what I discovered when looking into the world of Think Tanks fell into the category of things we probably know or suspect but never really think about. 

The material these groups generate flows directly into the media, in fact, it is often their job to pump it out in a way that promotes an agenda whether right or wrong. The material is often presented to intentionally skew or create conflict that can halt positive change. Much of this is rooted in securing or maintaining the financial position of those funding the studies.

The comments below were under the video I watched. While slightly altered they represent the thoughts of other viewers;

• Think tanks are like corporate consultants: they may have started as an independent insight, but have since gotten co-opted into inventing justifications for their sponsor’s predetermined decisions and act as a hired scapegoat if those decisions don’t pan out.
• Finding out that big pharma and big food are fighting is the kind of good news I didn’t know I needed today. This is a "Proxy war" of sorts and we are the pawns. 
  
• Think tanks get money from the military-industrial complex. This is why somehow defenseless countries with weaker weapons are threats. 
• The fact scientists could look at the same data about lead in the environment over time, and some arguing lead in gasoline was fine with others arguing it was a catastrophe waiting to happen. All this makes a person think that 'trust the science' and just listening to one lab, school, think tank, or organization means you're ultimately listening to the opinion of someone who has money linked to things going their way. 
• Think tanks take a medium amount of money from big business and talk to the Government. Then, they convince government authorities to contract with big businesses for massive contracts. Also, a medium amount of money flows to government authorities in this step. This all results in big businesses making disgusting amounts of money producing expensive parts, maintaining heavy equipment, or providing a "service" for the government that the people never asked for. In the end, we, the people pay absurd amounts of money to the government.
  

Considering how much Think Tanks influence government policy, they deserve much more thought. Things like, where they get their money or funding matters. Who they employ, and who employs them is also important. Think Tanks are tied to the hip with lobbyists, big companies, power, and more. Whether working for a foreign government, big pharma, or the military-industrial complex, the bottom line is Think Tanks are not working for you and me. A final thought, life is odd and the people determining our fate are scary. 

Advancing Time: Difference Between Fair Trade And Free Trade Hits ...

Advancing Time: Difference Between Fair Trade And Free Trade Hits ...: It is finally being acknowledged by main stream thinkers there is a difference between fair trade and free trade. Those who have taken for ...

Difference Between Fair Trade And Free Trade Hits Home

It is finally being acknowledged by main stream thinkers there is a difference between fair trade and free trade. Those who have taken for granted the notion they benefit from low-price exports usually pay a high hidden price for that gain. Today we are looking at a huge geopolitical shift that has the potential to crush countries such as China that are hugely dependent on exports.

Throughout history, trade policies have had massive long-term ramifications on the strength of a nation's economy. The promise that moving from producing products and increased trade will create wealth has turned out to be largely a myth for most Americans. Still, we hear the narrative spun by politicians and those profiting from exploiting unfair trade.

On Thoughtful Money, Michael Every, a Global Strategist at Rabobank, makes a compelling argument the world is at or near a tipping point. Every delves into the issue that the world is continuing to fracture geopolitically. Every gives the impression that the only way out of the global economic mess created by insane trade policies is to do "protectionism right" and that will not be easy to implement. 

A radical shift has been taking place in the way people think about trade and its long term impact on our economy. This has been a long time coming. The election of Donald Trump in 2016 unleashed this debate and the Genie can't be put back in the bottle. Despite his faults, Trump brought front and center the undeniable truth that America as a country was allowing some countries to massively abuse its trade policies.

History shows that planned economies often run into a wall. We witnessed this in the Soviet Union in 1990 and are now seeing it in China. Planned economies tend to be inflexible and unresponsive to supply and demand. That should be their problem and not ours. They should not be able to benefit by wrecking our economy. In the last 24 hours, CNBC put out a video about why American automakers are failing in China. This is a subject I have written several articles about, and hits on a much larger problem and that is, how China conducts business.

China's Economy Based On Exporting Cheap Goods And Labor Exploits Trade Partners

Free trade is given far too much credit for bringing prosperity to all, in fact, when it is not fair, trade can hurt the quality of overall growth. Trade between countries is not as big an economic driver as many people claim. The world can be divided into several trade sectors or groups. Every makes an effort to break it into the West, Europe, and the rest. The so-called rest constituting China, Russia, and a slew of underdeveloped countries. 

How Europe ultimately decides to with the coming changes in how trade is conducted will make a difference in the global economic landscape. Until now Europe has appeared to be giving in to the seductive promises cast out by China. This has placed Europe in a position where it may become subservient to China. Going forward, the most important factor, when all is said and done, may be recognizing there is a glaring difference between fair trade and free trade.

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

Advancing Time: Chinese EVs are piling up and blocking European Ports

Advancing Time: Chinese EVs are piling up and blocking European Ports: The mania over replacing fossil fuel powered cars with electric vehicles is beginning to wane. Several news agencies have reported that m as...

Chinese EVs are piling up and blocking European Ports

The mania over replacing fossil fuel powered cars with electric vehicles is beginning to wane. Several news agencies have reported that masses of unsold Chinese EVs are piling up and blocking European Ports. Interestingly the timing of this coincides with an announcement by Tesla that sparked another rally in its stock. Following a weekend visit to China Elon Musk reports that the company will partner with Baidu (BIDU) on mapping data collection. 

The news China has approved Tesla's program intersects with China's push into the EV market as its housing market explodes. In short, China needs a new spark or something to kick-start its economy. With enthusiasm for EVs on the wane, approving Tesla's program may be another propaganda campaign to tie EVs with the image, and idea, it will lead to an idyllic future. The Chinese EV sector wants and needs the "Tesla development" to generate the sign that the U.S. and China can work together in the EV space.

Automobile manufacturing is a huge market and the Chinese have made a huge investment in the EV sector by subsidizing its growth. In doing so they have set in motion the machinery to destroy auto manufacturers in other countries and thus dominate global auto production. Diminishing demand in China for their products is a huge contributor to Europe's top two car manufacturers' downturn which the Financial Times reported recently.

Not only has China heavily subsidized its EV sector, but it has even gone to outlawing the sale of fossil fuel automobiles. It now appears China has gone down this path with the intention of taking over the world auto market. It could be argued Tesla is no more than a pawn in this strategy. Embrace China early on, then when it becomes convenient, throw it under the bus, but not yet.

China Is Targeting Europe

In a video, The Electric Viking, delves into the issue of Chinese EVs piling up in European Ports. It seems from the number of new auto transport ships under construction or being planned in China this is only the start of a full-court press. This is where it should be noted that, abusing free trade is not fair trade. China's form of capitalism is predatory. Many of the comments below the Electric Viking video indicate viewers agree something is wrong and offer several solutions to the problem. 

As for Tesla's stock, while it has moved much higher, Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, said. “This has not been a short squeeze,” Dusaniwsky said as S3 has “actually seen short selling into this rally with over 2 million new shares shorted over the last week.” Tesla is the third largest U.S. short behind Nvidia and Microsoft, he said.

It seems that Wells Fargo analyst Colin Langan was also surprised by the big share price move. Langan warned that there could be restrictions on sharing data, which could limit Tesla's (TSLA) ability to leverage the tech progress it has seen in the U.S. There is also the glaring point that Chinese electric vehicle makers are undercutting Tesla when it comes to pricing.

Yes, the cars China produces must go somewhere, but that does not mean into my country! Remember price is not everything and there is a hidden price embedded in these cars. That is the destruction of local jobs. Again, I'm forced to ask whether EVs are the answer to global climate issues that governments and EV proponents claim. The fact that I'm not a fan of these vehicles aside, one thing is certain and that is China is all in and plans to crush automakers across the world.

 

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

Advancing Time: Looking At Financial "One-Offs" Driving The Economy

Advancing Time: Looking At Financial "One-Offs" Driving The Economy: Biden recently signed a massive aid package to give Ukraine and Israel a boatload of money. Much of this will be in the form of weapons ma...

Looking At Financial "One-Offs" Driving The Economy

Biden recently signed a massive aid package to give Ukraine and Israel a boatload of money. Much of this will be in the form of weapons made here in America. In short, this will be another way of delaying a recession while weakening the American economy over the long run. Indicators of where the economy is going are all over the place. I still contend that building real wealth is rooted in saving and building real things that have utility value rather than bridges to nowhere. 

Those of us accused of promoting doom porn and claiming history indicates markets revert to the norm have been wrong for a long time. In our defense, distortions in the markets can go on for a long time. Still, if history is any guide this time will not be different. Simply put, trees do not grow to the sky and at some point, the numbers do not work. Not all things move in a linear fashion or extend along a straight or nearly straight line, they can go parabolic, or collapse before our eyes. 

Lately, many people have forgotten the lesson the economy tried to teach us in 2008. Massive intervention halted that collapse, but this is not about the Fed, it is about the economy. Looking back through history, many of the things that have impacted the economy are now viewed as "one-offs" or in some ways a one-time event with a huge impact. This is one reason many comparisons between what is and what was have now been rendered obsolete. Still, certain laws of economics should and do, over the long term remain intact. 

Don't forget, that much of the financial machine runs on autopilot and not on a day-to-day basis. This means markets become complacent and tend to assume a trend will continue. After a decision is made as to how money will be invested over the next year or two investors have a way of turning their attention elsewhere. This is a key reason so much money is passively invested and discounts the long-term ramifications of reality. 

Also, important is the velocity of money. This is the speed at which money moves through the economy. It is important to remember a very small percentage of rich households at the top hold much of the money cast out into the world. This is often parked in investments and does not get "spent." This might explain why the speed at which money moves through the economy has been slowing. Meanwhile, no moss grows on the money poor people get into their hands. 

Liquidity and leverage also play a large role in economic growth. Leverage is often tied to loose and easy money policies. While people seem obsessed with small changes in interest rates, a far greater concern is liquidity. Without liquidity, markets can not function and true price discovery does not take place. There is a yin and yang aspect to the economy that short term can be forgotten putting investors at great risk. This centers around the opposite but interconnected self-perpetuating cycle that results from bad policies. 

To get a handle on where the economy is headed investors are generally forced to turn towards the news and the most recent data. Sadly, incompetent bureaucrats, people with agendas, and governments have a way of skewing data. Financial strength is different from the illusion of growth often touted in the GDP that results from a slew of methods to boost consumption. Below are examples of a few things  investors fail to see as the "one-offs" they are.

• Recently we have seen many new Employer Identification Numbers (EINs) being requested, this may be mistakenly seen as a sign of new business formations. In truth, many have existed for a long time and others not be viable. New regulations are driving this and it does not mean small businesses are thriving.
• In December of 2023, companies plowed over $18 billion into constructing manufacturing plants in the US ($220 billion annualized), up 64% from a year ago. This is up by 170% from December 2019. Even with government incentives, this cannot go on forever.  
• A matter that has not garnered enough attention is how economic problems from China may spill over and directly impact Japan. Over the years China and Japan have become major trading partners. Japan's direct investments surged as technology used to develop China's global supply chain exploded. The current problems haunting China are likely to spill over and damage Japan's fragile recovery.  

One of the most underrated drawbacks in our world full of people is that with a large population also come large problems. People have to be fed and taken care of. Cycles of population growth may generate ever more opportunities and new demand, but this is only part of a much larger economic equation. It can lead to quality not quantity being greatly underappreciated. Capital flows and factors such as brain drain due to taxation and legal protection are a big deal.

The goal of all investors should be to look out long term and not to lose a lot of capital until we get there. Capital preservation is job one while at the same time positioning ourselves to benefit during the final inning of an unending game. Considering the number of people that have made a fortune and then lost it, good luck with that.

 

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

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Advancing Time: The Ugly Future Of Social Security, Huge Shortfall...

Advancing Time: The Ugly Future Of Social Security, Huge Shortfall...: The ugly future of America's Social Security system is rooted in the fact major shortfalls ahead must be addressed in some way or anothe...

The Ugly Future Of Social Security, Huge Shortfalls Ahead

The ugly future of America's Social Security system is rooted in the fact major shortfalls ahead must be addressed in some way or another. This will not be easy and will most likely disappoint a lot of people. This is a massive program, as of February 2023, about one in every five residents in the US collected benefits from these funds. Many Americans rely heavily on Social Security benefits. The Social Security Administration claims that 97% of adults over the age of 60 are either collecting or will start collecting Social Security.  

Oh, what a tangled web we weave when the government gets involved. Even if I did not get that saying right, my takeoff on it has merit. A great example of a government program on its way to ruin is Social Security. What is called the unfunded "surplus reserve" is set to run out in 2033. Remember, promises can be broken or altered, and they will. Fixing this system many people refer to as a Ponzi scheme will not be easy.

The most obvious answers include removing the cap for high earners forcing them to pay more into the system. Raising the retirement age and cutting benefits. Another is to not pay what is promised to those who have saved and sacrificed over the years saying they "really don't need it." In other words, making people with savings ineligible, this is sometimes referred to as means testing.

In truth, inflation is already attacking the incomes of retirees based on how the CPI is figured, and adjustments in payouts already fall short of the real cost of living. Months ago when inflation was near its high, the website ShadowStats claimed real inflation was closer to 17.15% rather than the 8.5% that the media, the Biden administration, and the Federal Reserve claimed. This results in smaller raises and payouts for those on Social Security saving the system billions.

Having just seen the cost of caring for an aging parent, it is easy to join those saying the system to designed so that anyone with a long life is unlikely to pass much wealth along to their children. If you have money in old age, the system is geared to rip it from you. This is a brew of wealth transfer endorsed by society in the name of "the greater good." 

Comments below an eight-minute video ( https://www.youtube.com/watch?v=j1Bfxxhdn6g ) detailing the most basic facts about the wall Social Security is running into indicate most viewers get it. We understand the problem that haunts the Social Security system, Still, "getting it" changes nothing, the problem still exists. Boomers are draining the system. The comments below the video note;

• As a 37-year-old with 20 years of SS taxes behind me and another 20 years ahead of me... This video makes my skin crawl.
• The SS that you contribute is actually going to the current/next generations of retirees it’s not saving for you. Yours comes from the next generation contributing.
• We're living longer, the younger generations are having fewer children, housing is less affordable, income is not increasing, and the working class is unable to build wealth. Essentially, more people will need it and less will be paying for it.

As noted above, the unfunded Social Security "surplus reserve" is set to run out in 2033, a mere nine years from now. For such a widely used program, it’s a bit surprising that people in the US have put their heads in the sand and ignored the reality that this is no small problem. Also, most people know little about how it works. This remains the case even though most of the news around this program over the past decade has been predicting it’s doomed.

In Recent Years This Part Of The Budget Has Exploded

This is why millennials and younger workers often see the money being taken from their paychecks with the feeling they’ll never see it again. Sadly, the compact between generations to take care of each other has come under pressure for a number of reasons. The biggest two are difficult to overcome. Demographics and the idea individuals deserve a higher standard of living than necessary are coming into conflict.  

Of course, the concern over where all this is headed spans all of society. The truth is ugliness awaits most boomers nearing retirement, not only have they been lied to, but they also have to deal with rigged markets, corruption, and incompetent advisors. Anyway, you look at it, many people will not retire happy. As far as Washington and our politicians sorting out this mess, when all is said and done, this will most likely become another case of, "Thank God for the last minute or nothing would ever get done."

 

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

Advancing Time: A bad debt is a bad debt is a bad debt

Advancing Time: A bad debt is a bad debt is a bad debt: Seriously, when will people begin to understand that a bad debt is a bad debt? There is a saying, "You can't get blood out of a tur...

A bad debt is a bad debt is a bad debt

Seriously, when will people begin to understand that a bad debt is a bad debt? There is a saying, "You can't get blood out of a turnip." This idiom strongly emphasizes the impossibility of obtaining something from an inherently lacking source. This phrase is often used in financial contexts but can also apply to other affairs where efforts are likely fruitless.

In short, this is its core meanings:

• "You cannot get blood from a turnip" refers to the impossibility of extracting something from a source where it is not available.
• It advises someone against wasting time and energy on an unfruitful endeavor.
• It highlights the unfeasibility of obtaining funds or resources from someone who doesn't have them.

A fool willing to make a loan to an idiot or someone who most likely will be unable to pay it back is trying to pick up pennies in front of a steamroller. Years of easy money and low-interest rates are coming back to haunt the greedy souls and concerns that chose to discount the potential risks and drawbacks of making such loans. Charging a high-interest rate doesn't guarantee great returns.

It seems this "stupid lending"has not only been going on for a long time but we may be reaching the place where it becomes apparent how much this activity has been going on. This is because more and more of those owing this money are defaulting on their obligations. the depth of this problem may have been papered over due to all the helicopter money that big government showered down upon the masses in recent years. 

It could even be argued this unprecedented growth in free and easy money acted as a fertilizer fostering a whole slew of bad loans. The idea and moral hazard of "too big to fail" added fuel to the flame and did little to deter this. So I ask, who are the parties making such loans? The answer is, more people, institutions, and governments than we would like to admit. We see them in student loans, credit cards, and more. Sadly when all is said and done some of the cost for these bad loans will be passed on to society in general.

Debt Is On The Rise And Much Of It Will Never Be Repaid

Years ago I wrote a piece titled, "Where Bad Debts Go To Die." Also, another posting that spills over into this area is one warning of the danger of dealing with "bad people" and how they will muck up your life. As for the motivation for this post, it flowed from a pop-up ad from a fella promoting a seminar that was "coming to a town near you." It promised he would show you how to make an oversized return on your money by investing or buying tax sale liens. This could be called a loan to the local government with the property as collateral. This is another area of high risk for the inexperienced or unsophisticated investor.

Companies and businesses in general play by a set of rules that can boggle the mind. Other than not meeting their payroll a situation that is immediately noticed, they can bob and weave in a series of moves to hide their true financial situation. Bringing in a new investor, or shafting a current supplier after a big order can extend the life of a dying business. Such a business can claim it is still solvent and reorganizing will set everything straight. If done legally, the top management can collect paychecks the entire time this unfolds.

The current risks of debt defaults are being massively discounted. A great deal of our economic system is about debt. It is important to remember not all debt is created equal. The current risks of debt defaults are being massively discounted. It is important to remember all debts and obligations do not come due at the same time and when a bill is not paid or defaults it often starts a long and drawn-out legal battle. This so-called collection process may extend for years without harsh consequences.

Companies and businesses in general play by a set of rules that can boggle the mind. Other than not meeting their payroll a situation that is immediately noticed, they can bob and weave in a series of moves to hide their true situation. Bringing in a new investor, shafting a current supplier after a big order are just a few ways to extend the life of a dying business.  By stalling on paying bills a business can claim it is still solvent and reorganizing will set everything straight. If done legally, the top management can collect paychecks the entire time this unfolds. 

Gone are the debtor prisons and much of the shame associated will not paying your bills. Still, debts unpaid are more than a transfer of wealth it is theft. This is the reality of modern life and the bottom line is that you never want to find yourself in the position of having to decide whether to most throw good money after bad by taking legal action against a debtor in the hope of recovering even part of what you are owed. 

 

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

Advancing Time: Stock Buyback And Flash Crash Risk (Part 2)

Advancing Time: Stock Buyback And Flash Crash Risk (Part 2): Equities Could Fall And Not Come Back! A question lingering on the minds of thoughtful individuals is how "do we get ...

Stock Buyback And Flash Crash Risk (Part 2)

Equities Could Fall And Not Come Back!

A question lingering on the minds of thoughtful individuals is how "do we get there from here?" The fact is that events happen and generally not in a controlled way. Recency bias or our tendency to overemphasize the importance of recent experiences when estimating future events. Recency bias often misleads us to believe that recent events are an indication of how the future will unfold. An interesting mental exercise is to imagine what some of us might consider the unimaginable, a market "flash crash" from which the market does not recover. 

The fact is most investors believe that even if the stock market drops they will be smart enough to get out after taking only a minor hit or simply ride it out. Others simply think no way exists for these markets to fall sighting a lack of investment alternatives and what they see as the "Fed put" having their back. Don't forget, the reason we talk about the "too big to fail" is that they did fail.

As we look at a bull market long in the tooth, a global economy that is rapidly slowing, and debt exploding across the world, it seems any opportunity to panic the bears is not going unexploited. It is against this backdrop that one allows optimist fellas to think, this time is different. The thing many investors are not taking into consideration is that if the market falls like a flash crash on steroids they could be trapped. Investors have been assured that can't happen because circuit breakers have been put in place to arrest panic-style moves, however, imagine a market that falls, trade is halted, and the market simply does not reopen for days or even weeks. As remote as this might seem remember Japan's stock market has only just recently taken out the high it made decades ago.  See the 1980 to 2015 chart below.

It Has Taken Decades For Japan's Nikkei 225 To Take Out The 1980 High

Also, please take a moment to consider the possibility and the far-reaching ramifications of stocks falling from grace. Not only would active stock market investors get hammered but pensions, 401 plans, and most other investment programs would be devastated unleashing a wave of contagion. While you are imagining this scenario remember that America's stock market is the gold standard and consider how less stable global markets would react in countries like China and Brazil.

I continue to contend that we have never recovered from the Great Recession or corrected the many problems that haunt our financial systems such as derivatives and collateralized debt obligations. By printing money, imploding interest rates, and exploding the Federal Government's deficit we have only delayed the "big one." These two quotes on macroeconomic stabilization and crisis speak volumes. First, from Macresilience;

    "As Minsky has documented, the history of macroeconomic interventions post-WW2 has been the history of prevention of even the smallest snapbacks that are inherent to the process of creative destruction. The result is our current financial system which is as taut as it can be, in a state of fragility where any snap-back will be catastrophic."

And next from Nassim Taleb (author of The Black Swan);

    "Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite."

These quotes suggest an analogy with ideas about forest management when natural fires are suppressed. If random fires do not periodically clear away forest underbrush, we see a build-up of flammable material sufficient to power a massive conflagration. I certainly think an equivalent truth applies to financial markets. The longer it has been since a painful collapse, the greater the willingness to pile on leverage and complexity, such that the next crisis becomes unmanageable. The "Too Big To Fail" and other policies implemented since 2008 have distorted markets across the globe and laid the groundwork for "The Big One", or what we will someday look back on as the mother of all sell-offs.

Over the years not only have we witnessed many cases of government overreach and many rule changes to protect the system at the expense of the people. What happened in Cyprus years ago should serve as a warning to anyone who thinks money in the bank is safe. A bad haircut, in this case, means you have been robbed. That may be the case if the government reaches in over a long weekend and steals money from your bank account. This is a horrible precedent to set, and the worst part may be how many people accept it saying it is OK as long as it is only on the larger accounts and only impacts the savings of someone else!

By not taking steps to correct many of the ills lurking in our financial system we have made things worse. Absent are actual structural changes necessary for our economy to become sustainable. Instead, we have put band-aid upon band-aid, upon band-aid while what was necessary was the amputation of a diseased limb. After all the threats that this market has avoided, and sidestepped, some investors have come to think of it as invincible. This market has overcome a struggling euro, the financial cliff, the end of Greece as we knew it, a trade war, and a global pandemic.

 

While Knowing such a market meltdown is highly unlikely we should consider the possibility. Remember, none of the oil traders foresaw the oil contango  that occurred in 2020 and shook the oil industry to its core. As far as the surge in financial assets, the Fed should be tickled pink by the fact so much money continues to flow into financial instruments rather than hard assets. This has resulted in far less inflation than we would have otherwise experienced.  In short, things could get quite bumpy for financial assets if wealth decides to shift into hard assets. 

 

Footnote; This is the link to part one of this article which focuses on the danger created by stock buybacks. https://brucewilds.blogspot.com/2024/03/stock-buybacks-and-flash-crash-risk.html

 

 

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

 

Advancing Time: Stock Buybacks And Flash Crash Risk (Part 1)

Advancing Time: Stock Buybacks And Flash Crash Risk (Part 1): Two older postings that appeared on AdvancingTime in recent years have grown in importance as the markets have exploded upward. One of the a...

Stock Buybacks And Flash Crash Risk (Part 1)

Two older postings that appeared on AdvancingTime in recent years have grown in importance as the markets have exploded upward. One of the articles focused on the dark-side of stock buybacks and how for years they were illegal. The other asked readers to consider, no matter how remote, the possibility we could at some point witness a flash crash so devastating that we see markets fall like they are on steroids. If such an event occurred the damage might be so severe that trading would be halted and traders trapped. These subjects intersect with other factors and events taking place over the years that have thwarted true price discovery. The widening disconnect between the financial sector and the real economy increases the risk of a major economic setback in the future. 

An example of price manipulation is how over the years the BOJ's buying of ETFs has bolstered the Japanese stock market. This could be viewed as a path to nationalizing Japan's debt. In some ways, the actions of Japan's central bank could be considered nothing more than a new model of "stealth nationalization." Two enormous problems flow from such a policy, the first is while giving the appearance of economic growth, the higher valuations are not based on any real quality and the second even bigger issue is that under this policy eventually the central bank will control or pretty much own everything at a distorted value they determine best suits their narrative or purpose. With Japan's stock market now making new all-time highs this is of course no longer considered an issue or moral hazard. Still, it stands as a monument to the massive manipulation used to convince investors all is well.

The subject of growing market fragility and manipulation was recently addressed in a piece put out by "Thoughtful Money." It commented on how algorithms, often trading overnight, give the big boys an unfair advantage. It then dove into how stock buybacks are playing into equities and skewing valuations. This centered on how many corporations are starting to enter the blackout period preventing them from buying back their stock until they've released their quarterly earnings and how this temporarily removes a huge amount of important buying support for shares. While the video rolls on for well over an hour, the first 26 minutes hit the hammer on the nail in how stock buybacks mainly benefit those at the top and destroy true price discovery.

Financial engineering rather than making money plays a huge role in how markets are valued. Before the Great Depression share buybacks and margin lending were a huge factor in lifting stocks to an unsustainable level. This is why for decades stock buybacks were illegal because they were considered to be a form of stock market manipulation. They were legalized in 1982 by the SEC and since then have become a tool for companies and management to boost share prices. Buybacks have been described as "smoke and mirrors," because when a company buys back shares of their stock they reduce the "share float" and increase earnings per share. This often creates a dangerous illusion that draws less sophisticated investors into a market that is not nearly as strong as it appears. Orders to buy back stock are insensitive to price and are set to purchase on any weakness. 

 

During the Trump era, the tax law that lowered corporate taxes also encouraged the repatriation of cash that had been stored overseas. This fed fuel into the share buyback frenzy. It is important to remember that much of the buyback craze taking place prior to Trump’s tax changes was financed from debt raised by selling corporate bonds with interest rates at historic lows. Another kick came from the Fed's massive injections of money due to Covid-19. 

 

This is where I remind you it is major investors that sit on the board or hold executive positions and the same CEOs and other top managers that have received much of their compensation over the years in stock options reap  the largest benefits of stock buyback programs. Also, these insiders have the advantage of being able to create a well-constructed exit strategy allowing them to get out of or hedge their positions before reality sets in and prices fall back to earth. 

 

Stock Buybacks - Financial Engineering 

All this reinforces the argument that Trump's tax bill was strongly tilted towards rewarding America's wealthy. The bill was not about real reform and has only added to the trend of growing inequality. Trump's tax reform may have boosted earnings per share growth by more than twice what U.S. economic growth would have but, has generated little in the way of real or new economic growth. Only by accumulating debt have many laggards been able to afford the buybacks necessary to keep stock appreciation stable. 

It should be noted that corporations tend to retreat from buybacks at times of market uncertainty. Share buybacks proliferate when the market is rising but evaporates when the market collapses. In many ways, the decision way back in 1982 to again allow stock buybacks may highlight the true meaning of the phrase. "Been there, done that, learned nothing." The problem with this is many leveraged companies will not have the money to keep their stock flying if markets fall and stocks get hammered. 

 

Footnote; Part two of this article which focuses on the possibility of a flash crash has now been published. https://brucewilds.blogspot.com/2024/04/stock-buyback-and-flash-crash-risk-part2.html

 

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

Advancing Time: The Plumbing Of The Financial System We Don't See

Advancing Time: The Plumbing Of The Financial System We Don't See: There are a lot of parts or plumbing in the financial system that we don't see. It is important to note the financial system and the eco...

The Plumbing Of The Financial System We Don't See

There are a lot of parts or plumbing in the financial system that we don't see. It is important to note the financial system and the economy may intersect but are not the same thing. Ignoring this fact, as many people do, will come back to haunt us. 

This is why AdvancingTime has pounded away at the idea that where and what we buy has a major impact on the future of both communities and countries. I just finished watching "Thoughtful Money (with Adam Taggart) Good news!" The Zero Hedge team put this special Thoughtful Money's debate on the fate of the US dollar on the YouTube channel. This was a deep-dive discussion of over three hours.  

This important video did nothing to change my mind about where the world is going. In short, I liked Brent Johnson's line, "certainty is death." He claims he is not certain about anything. The footnote under the discussion title makes it clear that Investing in stocks, bonds, exchange-traded funds, mutual funds, and money market funds involves risk of loss. Loss of principal is possible. Also, some high-risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including a greater volatility and political, economic, and currency risks and differences in accounting methods. In short, it underlines Johnson's uncertainty.  

The Financial System Is Built Like This

More than one economist, big wig CEO, and Fed watcher have admitted the problems haunting the financial system have very deep roots. These people often contend governments and central banks have not fully rectified the problems causing the great financial crisis of 2008. Instead, they have merely papered over our failures by printing money and flooding the system with liquidity.

 

In truth, the financial system is a rickety cobbled-together mess of poorly fitted pieces. Overall, the financial system is not a well designed machine. Instead, it is glued together in a haphazard way to get the job done. To make matters worse, this system is greased by the greed of those who benefit from stealing a little from here and there. 

 

In the real world, things are usually not intentionally designed to be complicated but the reality is that they just are. Part of getting a clear picture of where we are headed stems from the reality this is not all about economics but politics plays a major part in our future. Recessions have always had the effect of cleansing the economy of weak noncompetitive companies to clear the way for new stronger companies. The efforts of those in charge of such things to remove recessions from the economic cycle has created a new hazard.

An excellent example of "hidden plumbing" is the Japanese carry trade. An article by Bloomberg reporter Masaki Kondo that appeared on Zerohedge on February 1st titled, "Aozora Delivers Grim Reminder Of Japan Carry-Trade Risk" details some of these issues. It details how Japanese investors as a whole have boosted their overseas investment since the BOJ expanded monetary easing in 2013. This includes Japanese banks. This puts them at risk if the cost of borrowing in yen should rise. He point out this could trigger an unwinding of Japan's massive carry trade. 

While many people have focused on the losses US banks have incurred on long-term US bonds and American Banks' exposure to commercial real estate, little attention has been paid to Japan's exposure to these items. Not only could Japanese banks take a hit on both these investments but Japan's exposure to the downturn and losses in China is another area for concern. Yes, it is possible that China's economic problems will spill over and negatively impact Japan. Still, this is an area many financial gurus claim is an opportunity for Japan to expand into and exploit, in short, they claim economic chaos in China is a plus. 

We should be aware that clogs in the system could create liquidity issues and even a change in the velocity at which money moves through the financial system could cause problems. The "slowing in the velocity of money" is rooted in where it is being placed. The speed at which money flows through the economy in some ways is tied to the speculation about the future of inflation. 

Behind the scenes, a lot of things are occurring that we don't recognize as important until they are unveiled as being so. Trade deficits, reshoring of manufacturing, changes in how taxes are accessed, man made and natural disasters, and more all flow into this mix. This translates into "nobody really knows what the future holds." The so-called, often self-proclaimed experts, included.

Another thing we should be worried about is "financial one-offs" These are one-time events that may prove unable to propel the financial system forward over the long haul. In a world void of financially nutritious content, an individual has to really go out of their way to become educated in the way to avoid ending up as financial road kill. The less you know may increase your feeling all is well but does little to ensure your financial future.

 

(Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)

Advancing Time: America's Immigration Crisis, Due to Biden's Faile...

Advancing Time: America's Immigration Crisis, Due to Biden's Faile...: CNBC just put out a video on the problems migrants are causing as cities struggle to deal with new immigrants being dropped on their doorste...

America's Immigration Crisis, Due to Biden's Failed Policy

CNBC just put out a video on the problems migrants are causing as cities struggle to deal with new immigrants being dropped on their doorsteps. Even many of the cities that opened their arms to welcome these people want the government to halt the inflow. Coupled with this are calls for Washington to send money to help these cities out. Today, major cities like New York, Denver, and Chicago are finding themselves under extreme financial pressure and not getting the federal funding or assistance needed to cope with the inflow. All this has many Americans saying, enough is enough. The big question is how and when will this end.

 Even some of those formerly advocating the loosening of immigration standards and open borders are coming to a place where they are untenable. Sadly, with the flow of more immigrants has come a slew of problems. Part of the problem is that many of the people streaming over our borders are not workers, this inflow includes people needing expensive healthcare and criminals. Yes, with the good come the bad unless restrictions are in place. More people are not the answer to crafting a strong economy, quality is far more important than quantity.

Remember, this immigration fiasco is occurring while American citizens are forced to stand in long lines with passports in hand. Anyone who has traveled knows you can't just walk into any country without any questions asked. All this highlights the fact that immigration has been an issue for decades and not properly addressing it will not make it go away. A reasonable solution to solving our immigration problems has eluded both Republicans and Democrats time and time again and reduced those caught within the system into political pawns.

America's Immigration System Is Broken

The debate over immigration, processing new arrivals, and addressing millions of undocumented immigrants, receives plenty of press but most of our immigration problems lurk below the radar. The point is that we should be careful what we wish for. In our complicated world, there are often pros and cons for every issue. The ongoing migrant crisis is unprecedented and is hitting countries across the world. Here in America, it is impacting not only the border states but is reaching deep within the country.

Even small businesses in my state, far from the border, are required to confirm a worker is legal to work. This is a bit ridiculous for small firms with only a few workers, all from their own family and people they have known since birth, but that's the law. The comment section of the CNBC video is full of opinions on how opening the border is impacting America. Since these people are flooding to cities, that is where most problems are apparent. Several of the themes revolve around things like, "As a Chicagoan, my city is being ruined." People from New York and Denver are also echoing the same message and crying about what Texas has dealt with 100 times over.

Trump's Politically Divisive Border Wall  

Immigration is the crux of the issue and Trump's so-called wall became an emotionally divisive symbol that took our eyes off the real problem. America's immigration policy is a costly mess. Like it or not, those in charge of such things as controlling our borders are letting immigration reshape the world. This is happening far faster than most people can imagine. Let's call a spade a spade, immigration mainly benefits those entering a country and not the country's current residents. Otherwise, countries would have to pay people to come rather than build fences to keep them out.

Washington has been playing games and politics with America's immigration policy for years it has been a political football. The immigration system is badly broken and fixing it is easier said than done. A huge part of the problem stems from the fact most people can not agree on exactly what kind of immigration system we should have. To many Americans, the key issue is how open the borders should be and who should be allowed to enter. Now Washington's inaction is coming back to haunt us.  

Tens of billions of dollars are wasted each year on this costly inefficient system according to an article published by the American Action Forum way back in April of 2015. The article explored the cost of a broken immigration system on American business. The fact is that when the American Action Forum (AAF) analyzed the total costs of the immigration system, they found close to $30 billion in annual regulatory compliance costs. It hardly takes a rocket scientist to determine that reducing the number of people "illegally" entering the country would save billions of dollars and allow the system to function better even in its current poorly crafted form.

A lot more of our political attention should be focused on the broken bureaucratic apparatus that comprises our current immigration system. While we spend hundreds of billions of dollars on this and that in overall cost the wall Trump proposed now seems a rather puny amount. This is confirmed by figures that show merely doing away with making and handling the penny America would save enough to pay for a border wall. Of course, none of this is a solution to the Deferred Action For Childhood Arrivals (DACA) situation. Loading millions of people on buses and deporting them will never happen. At the same time, those wanting more open borders should realize the current situation does not work either.

Washington should step away from the "emotional" aspects of immigration such as flowery debates about the rights of people and what they "deserve" and focus on the key issues of restoring a functioning government and getting on with real immigration reform. In the overall scheme of things considering America's multi-trillion dollar budget, the 5.7 billion dollars requested for the wall is peanuts. In truth, it is easy to see how America will get a good economic return on money spent on a barrier that works 24/7 year after year. Most taxpayers, if asked, would see this as a far better investment than paying government workers to stay home, as we did during the last government shutdown.

 

Footnote; The article above contains several links due to the fact parts of this issue have been the focus of prior AdvancingTime posts. It is important to understand that immigration policies determine the future of a country and its "way of life."

 

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

Advancing Time: The Dreadful "C" Word - Conserve!

Advancing Time: The Dreadful "C" Word - Conserve!: An article I wrote years ago remains as relevant today as when I wrote it. The subject delved into how candidates shy away from the dreade...

Advancing Time: Austerity Appears To Be An Idea Long Dead

Advancing Time: Austerity Appears To Be An Idea Long Dead: A word nobody has mentioned for a long time is austerity. The term that would take us down the path to sustainable spending has been tossed ...

Austerity Appears To Be An Idea Long Dead

A word nobody has mentioned for a long time is austerity. The term that would take us down the path to sustainable spending has been tossed into the dustbin of history. Today the concept of government restraining spending is considered a bad idea. Those who oppose austerity often cling to the idea that a major reduction in government spending will change future expectations about taxes and future government spending. These are factors that encourage private consumption and propel forward overall economic expansion.

Since 2017 when an article by James McCormack titled, "The Quiet Demise of Austerity" was published on Project Syndicate, the idea of austerity has become toxic. Government spending has gone over the moon. It is a reach to blame it all on governments' response to the Covid pandemic. Still, the fact is that since then America's national debt has soared from roughly 21 trillion to over 34 trillion dollars. In short, austerity seems to have been forgotten just when it is needed most.

In his article, McCormack pointed out that debates about the potential advantages of using stimulus to boost short-term economic growth, or about the threat of government debt reaching such a level as to inhibit medium-term growth, have gone silent.  It is as if the whole world has capitulated to the idea that we can spend our way out of the debt. Other arguments center on the idea that it really doesn't matter and that we will deal with the issue when we have to.

There is no doubt that economic growth tends to mask a multitude of problems. In economics, austerity refers to cutting spending often by lowering and reducing the number of benefits and public services.  Austerity policies are often used by governments to try to reduce their deficit spending. Spending cutbacks are sometimes coupled with increases in taxes in an effort to demonstrate long-term fiscal solvency to creditors. 

Austerity Is Often Seen As Heaping Misery On The Poor

It is easy to point at measures taken to reduce runaway or wasted spending and blame them for creating a reduced spending spiral but that is unfair. Please note that while it is important to control rising budgets and how much is spent, where it is spent is just as important. 

 

In the article I cited McCormack wrote; Objections to austerity were understandable after the 2008 financial crisis when growth was languishing below 2% and sizeable negative output gaps suggested that overall employment would be slow to recover. But now the merits of austerity seem to have been forgotten just when it is needed once again.

It is true that government spending financed by deficits does support economic growth when consumers and businesses are unable to do so. When the private sector is unable or unwilling to consume at a level that increases GDP and employment sufficiently, Keynesian economists claim governments should spend more, and not less. This tends to be a slippery slope that is difficult to exit. Adding to this problem is that the government sector tends to be the least productive part of the economy. Larger government often leads to more regulation which strangles productivity in the private sector. What we are witnessing today is spending more and more in order to achieve economic growth. 

Austerity has been given a bum rap, blaming it for the problems we face is akin to blaming the medicine taken after someone becomes sick for the illness. Austerity measures have been associated with public protest and claims of a significant decline in the standard of living. The argument by contemporary Keynesian economists that budget deficits are appropriate when an economy is in recession bolsters this movement. They claim it reduces unemployment and helps spur GDP growth, and that in an economy one person's spending is another person's income. If everyone tries to reduce their spending, the economy can fall into what economists call the paradox of thrift which results in a reduced spending spiral and a fall in the GDP.

Austerity measures are typically taken in extreme situations where there is a threat that a government cannot honor its debt liabilities.  Such a situation may arise if a government has borrowed in foreign currencies that they have no right to issue or if they have been legally forbidden from issuing their own currency. In these cases, banks and investors may lose trust in a government's ability and/or willingness to pay its obligations and either refuse to roll over existing debts or demand extremely high interest rates.

Often the typical goal of austerity is to reduce the annual budget deficit without sacrificing growth. Part of the goal of these policies is generally to reduce the overall debt burden, as the economy grows. Unfortunately, most efforts by central governments to prop up asset prices, bail out insolvent banks, or "stimulate" the economy and deficit spending make stable growth less likely.  

People often look for someone or something to blame for the troubles we bring upon ourselves. This is especially true when austerity is introduced as a way to bring out-of-control government spending back in check. Austerity has negative connotations because it is often painful. Still, blaming austerity for the blowback from governments living beyond its means is more than unfair. 

Common logic would dictate at all times governments operate with responsible reigns on spending. If a government spends and runs its business in an austere way the issue of when to start cutting or tightening should never surface. There is no doubt that economic growth tends to mask a multitude of problems. In economics, austerity refers to cutting spending, often by lowering and reducing the number of benefits and public services.

Simply put, such cuts are very unpopular and painful to the people and the voters as social spending programs get targeted for cuts and taxes are raised. Also, retirement ages may be raised and government pensions reduced. Even port and airport fees, train and bus fares, and a slew of other cost usually increase. Please note that while it is important to control rising budgets and how much is spent, where it is spent is just as important.

The problem we face today is the wild spending post-Covid never stopped. Every dollar wasted on political pork, fraud, and poorly considered infrastructure makes the country's fiscal situation even worse. Those opposing austerity argue that, in periods of recession and high unemployment, austerity policies are counter-productive, because reduced government spending can increase unemployment. Also, reduced government spending reduces GDP, which means the debt-to-GDP ratio examined by creditors and rating agencies does not improve. 

At some point, the present and the future intersect, it is not just about the deficits of today but the promises you make coming due. These promises and how they affect the financial landscape must be factored in. The bill for overspending does eventually come back to haunt you. That is why we would be far better off if the concept of austerity was replaced or renamed sustainable spending. I suspect that by the time cutting spending is again in vogue, we will be in real trouble.

(Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)