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This can’t wait

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John Mauldin has written an informative piece entitled “this can’t wait” which sums up a lot of pieces I’ve written on the sickening state of public pension unfunded liabilities and the debt super cycle that is facing us. While Mauldin is trying to sell his investment services on the back of this, I wasn’t when I wrote mine. Public service announcement? Maybe but the stats of the black holes we face in pensions and central bank QE which has failed to boost money velocity will bite. Hard. There will be no “I told you so” glory because almost everyone will lose big.

Even if people want to criticize me for being a perma-bear there is no harm in being aware of what is likely coming.

The “bigger” point about the FANG sell off

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While the press is waxing lyrical about the unprecedented loss caused by a sell off in FANGs (Facebook, Amazon, Netflix & Google) we should note that it overlooks one factor. Before getting to that, to start with the sell off in gross dollar terms it is unsurprising given the already highly inflated value of the base stocks. So if A $500bn market cap Facebook loses 4% it is equivalent to $20bn. On one day FB lost a Fiat Chrysler. It’s math. Let’s not forget that Bitcoin is now worth $165bn but let’s not let that bubble spoil the party.

The problem that faces financial markets is the advent of ETFs. While stupefyingly simple to understand as an investor it is that same simplicity that breeds complacency. ETFs are simple products that enable investors to pay much lower fund management fees to buy easy to understand baskets- whether coal, gold, oil or FANGs. There are 106 ETF products that own Facebook as a Top 15 holding with that averaging between 5% and 10% of the entire fund.

Yet on the way up things are rosy. It is what happens on the downside that has yet to be fully tested. Around two years ago, CM wrote a report which warned of the risk of ETFs on the downside, especially levered ETFs (i.e. you buy a 2x levered FANG fund which means if FANG stocks go up 5% you theoretically get 2x the return for any given move up or down.

However in times of uncertainty (i.e. heightened risk) the options markets that price risk move magnitudes on the downside vs the upside. Meaning for an ETF to replicate what it proclaims on the brochure becomes much more difficult meaning the fund may under or overshoot the promises. Also in certain markets (e.g. US & Japan) where stocks on the exchange have limit up/down rules on the physical stock, should a market crash ensue, the ETF prices on the theoretical values of stocks that may not have opened for trading. What that means is that the ETF may reflect a market that is 10-15% below where it actually eventually opens. Meaning poor ETF buyers get gouged. However the computer algorithms in the ETF end up chasing, not leading the market which in and of itself creates more panic selling further reducing market confidence. Where a market might have traditionally fallen  3% on a given piece of bad news, ETFs tend to react in ways that might cause a market to retreat 6%. Indeed market volatility is amplified by ETFs.

At the moment market behavior is exceedingly complacent about risk. Before GFC highly complex products like CDOs and CDSs were the rage. 99% had next to no clue how they operated but they found their way into the local government investment portfolios of even small country towns in Australia.

ETFs on the other hand are strikingly simple to grasp but that also means we pay far less attention to the risk that goes with them. That is the bigger worry. People complacently thinking their portfolios are safe as houses may wake up one morning wondering why some flash crash has caused Joe and Joanne Public’s retirement nest egg to get decimated.

 

ABC gives yet more reasons to be defunded

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The Australian Broadcasting Corporation (ABC) has a charter to be politically unbiased. The public knows it is unashamedly partisan. Yet its overseers (aka the Government) still give funding north of $1bn to the state owned media group without calling it up for what it gets away with. What it passes for ‘free speech’ usually ends up in the climate change, asylum seekers or any other social justice cause it feels strongly about. Yet the charter is not supposed to act as a platform for disgruntled public servants to broadcast their own views on the taxpayer’s purse. The latest saga is the ABC’s JJJ station which broadcasts alternative music. It has decided it won’t be playing the Hottest 100 Countdown on Australia Day because of its political views that it is in reality ‘invasion day.’ There is no problem for each and everyone of those JJJ employees who thinks of Australia Day that way to believe that. It is another to provide a tax payer funded platform to express it.

To put it in perspective, given several Victorian local councils decided several months ago not to host naturalisation ceremonies on Australia Day, one would hope that JJJ has just woken up from the marijuana smoke haze in the studio to realize this fact. Otherwise, why has it taken them so long? Surely if the producers  were savvy enough at JJJ they could have announced their political stunt the week all of the social justice governments were announcing it.

However it is a serious issue. Why is there a need for four taxpayer funded stations in Melbourne? It is a similar story in the other states. The original purpose of the ABC was to fill in for a lack of a commercial alternative, especially for those in the countryside. Now we can all choose to stream Australian radio stations while we’re in Berlin or Caracas if we feel like it. When you look through the stats, JJJ key demographic is 25-39yo but across all time segments except ‘Afternoon’ it struggles for better than 5%. ABC Melbourne caters to pensioners. Is there a need to provide the infrastructure to supply four stations. Surely the rational argument is that a similar number of bodies must be employed to fill the same roles – the producer, technician, the script writer, the news gatherer….even the guard at the front door. Run many of these stations on commercial terms and most wouldn’t pay the cost of operating.

If one believes we must have a public broadcaster then the number of stations should be cut to one, not four. If the private sector can’t see a ‘commercial’ justification for filling the gap it would leave then it is odds on that advertisers aren’t prepared to either. On the flip side if the ABC radio presenters are desired by particular audiences then the private stations will gladly snap them up.

This is not to undermine the efforts of some quarters of the ABC. Some documentaries such as ‘The Killing Season’ or Foreign Correspondent’s expose of the Fukushima reactor were extremely well done. However it is the fact that some in the ABC think they have a right to dispense the billion plus funding on their own political and social causes. Yet who can blame them when the former Communications Minister (now the Prime Minister) is desperate to avoid courting negative media coverage? When a conservative (by name plate) PM is afraid to go on private radio stations with conservative audiences you know this problem of bias at the ABC won’t be going away for a long time, especially after the drubbing the conservatives will get at the coming election.

With a $500bn and rising debt in Australia, we can ill afford frivolous public spending, especially on broadcasting where the ABC ignores its charter so brazenly. We can chose to listen to left leaning or conservative radio stations in the commercial space. We can consume on line any form of media we choose from around the globe. With media now so ubiquitous, what is the ABC offering that is remotely ‘differentiated’ to warrant its existence? None that can be seen.

Crime in Japan – Breakdown of the Nuclear Family

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CM – Crime in Japan – Breakdown of the Nuclear Family

Following on from pensioner crime in Japan, this eye-opening report on the breakdown of traditional families points to a future unlike what many may not fathom. The link above contains the full report with a short summary can be found below.

Did you know that 25% of all marriages in Japan are couples that marry due to unplanned pregnancies? In Okinawa that rate is 42.4% Did you also know that 25% of all households with children in Japan are single-parent? The perception of the dutiful wife getting up at 4am to make breakfast for her samurai salaryman husband are virtually non-existent and half of divorces happen in age groups 55 years old and above. 25% of divorces occur in the 65yo+ cohort. The government changed the law in 2007 entitling wives to up to half of their ex-husband’s pension. Still the trend was rising sharply even before its introduction. Mrs Watanabe has had enough of her salaryman and wants out.

Domestic violence (DV) is seeing a very sharp upturn in Japan. Between 2010 and 2014, victims of DV have soared 60.6% against women and 650.1% against men. Most cases (over 60%) of DV were marital related. Recognizing the growing problem, The police have even developed a new category of DV which defines a divorced couple who are living under the same roof. Economic conditions for some families has become so tight that the stress of living with someone they do not want to be with now gets its own category, scoring over 6,000 cases alone in 2014.

Between 2010 and 2014, total reported stalking cases surged 36.6% to 24,837. 50% of stalking incidents recorded were related to partners (including former partners).

The Ministry for Health, Labor & Welfare (MHLW) has 208 child consultation centres which fielded over 88,000 cases in 2014, a 20.5%YoY increase or 22x the level of 20 years ago. Despite a 2.4x jump in social workers inside these child consultation centres over the last two decades they can’t keep up with the demand. The Japan National Police Agency (JNPA) statistics show a sharp jump in arrests for child abuse, 80% being due to physical violence causing injury. In 2013, 36 abused children died with 16 of them under 1 year old. Police note that child abuse is being driven by the breakdown in traditional family, unemployment and poverty, stats which we showed earlier to be rising steadily.

Crime in Japan is a problem that will not simply disappear with the evolving mix of aging demographics, poverty, unemployment, underemployment and economic stagnation. We note that the previous jump in Japanese crime started in 1997 and ran to a peak in 2003. Unemployment was a factor. In the crime boom of 2010-2016, we note that the unemployment rate has fallen but it masks disturbing trends in lower paid part-time work which is putting families under financial stress.

There is the smell of fear in the workplace. In the period 2002 to 2013, labour disputes almost trebled. Bullying and harassment (which are obviously less palatable for companies to have floating in the public domain) as a percent of total disputes has ballooned from 5.8% to almost 20% over the same period.

Another dilemma in the data is the employment referrals by government unemployment agencies for middle or advanced aged staff (45yo+) which shows that around 25% of them end up with work in a fixed term capacity of more than 4 months.

Ironically active retraining of inmates to help them find new careers after release occurs in prison. Why isn’t more being spent on finding ways to redeploy those out of prison? The idea that any job will do is a recipe for failure and cannot be relied upon as a sustainable program. Most vocational training by Hello Work, the government unemployment insurance agency, is broad and non-specific. Any specific job training will be ‘paid for’ which ultimately is limited to an unemployed person’s financial status and confidence a job will be attainable at the end of it.

Yakuza gang hands out treats to 800 kids during Halloween

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Ironically in today’s day and age the mafia/yakuza/la cosa nostra embodies more about family and loyalty to blood than many of today’s units where the largest crime committed is probably adultery. In Kobe City, the Yamaguchi-gumi (Japan’s largest Yakuza group) handed out sweets to around 800 attendees on October 31st. While the Hyogo Prefectural Police requested they stop this action in order that they don’t wrongfully trick kids into thinking they’re good guys sadly the mobsters declined and went on ahead.

It was only several decades ago that the Japanese police actually enlisted the help of Japanese yakuza groups to help kick out the Chinese and Korean mafia groups operating inside the land of the rising sun. The sort of if we find a dead body in a dumpster we’ll file it but won’t investigate type of police work.

In the end the police let the show go on – perhaps a sign that crime eventually does pay!

An eerily potent lesson for today

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In 2011 then Polish Central Bank Head Marek Belka spoke about why Eastern Europe understood austerity better than the West ever will. As our governments bloat budget deficits to avoid taking much needed reform and belt tightening he said of Western Europe….

“Because the people here still aren’t used to prosperity. Let me give you an example from my days at the International Monetary Fund. It was at a time when the Latvians had to implement a drastic austerity program, which caused consumer spending to drop by 25 percent in a year. I asked a Latvia negotiator how his country expected to survive this dramatic crisis. He said: What crisis? We had a crisis when the Soviets were sending us to Siberia. Here in Eastern Europe, many still remember why they were once poor, and they’re not afraid of reasonable reforms that are painful in the short term.”

Experience is a great teacher. It gives the test first and the lesson afterwards. Maybe time we prepare to be Latvians.

 

Sexual and domestic violence against males – the statistics

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It is perhaps unsurprising to see some women come out and blame men for their ‘silence culture’ in the aftermath of the Weinstein saga. Indeed it was some of the sisters who chose to stay silent while they collected the trappings of stardom as others suffered. If we were to believe the Me Too crusade we would think that only men commit sex crimes, right? The US National Intimate Partner Sexual Violence Survey (NIPSVS) conducted in 2010 showed that 25 million men and 53 million men had claimed they were victims of some form of sexual violence by an intimate partner or acquaintance. Both figures are shocking to be sure but the statements in a rather one-sided piece from Heather Jo Flores in The Independent with respect to Me Too.  were of particular interest:

Men, it’s not our job to keep reminding you. Remind each other, and stop abusing. It’s as simple as that. Until men speak out against men who abuse, this will never stop. How about y’all post “I ignored it and I won’t anymore” instead? Because #hearyou doesn’t cut it. Just hearing us doesn’t cut it. Taking action, speaking out, and showing zero tolerance for abuse is the only way through. Silence enables. Be the change..So why do men need to have multiple victims come forward before anybody says a damn thing”

If Flores opened her eyes she might see that we are exactly as she claims we are not.  For much of the utter rubbish men may brag about amongst themselves (e.g.bro-culture), talking up how they conducted street justice is never one of them. Take a look at the multiple social experiments on domestic violence which show random men stepping up to defend women they have never met who look to be in trouble. That is taking action. Immediate. No looking the other way. They are hardwired to protect her. It is instinctive. In the reverse, no one defended the male being attacked in the same video. If anything males smirked, some feeling sorry for him, others joining in but not stepping in the way. Where were the girls that leapt into action to protect the defenseless male? Yes, nowhere. The pot calling the kettle black?

A study conducted by the IDF showed mixed battalions had far higher casualty rates than segregated ones because the enemy would deliberately target the women knowing the men would be men and do extraordinarily risky things in harms way to protect the women. It was not that the female soldiers were any less effective in combat. These weren’t random acts of stupidity but a sense of moral duty not found in training manuals. Indeed it is men being men.

Many of us are told from our tender years that we must never hit women. To open doors, walk behind women going up escalators in case they fall, to walk on the kerbside to prevent women from potentially being drenched by a passing car hitting a puddle. In Japan one would be amazed at the reactions of surprise if one suggests women exit the elevator before men. There is a look of “are you crazy?” Followed by a polite smile and bow. We certainly feel a strong bond to defend. Is it any wonder men are 93% of war casualties?

Flores goes on to say, “Yes, I know men get abused too. Once in a lifetime, maybe a handful of times, in extreme situations. And they get abused by men, mostly. Just like us..I write this to ask: why are we still demanding that women out themselves as survivors, again and again and again, rather than demanding that men out themselves as abusers? Violence against women is a daily reality,.”

In the 12 month period conducted in the NIPSVS survey 6.46mn women and 6.1mn men were victims of sexual violence by their partner, an acquaintance or stranger. 4.74mn women were victims of physical violence by men and 5.365mn men were victims of phyiscal violence by women. Hardly a handful of times, nor at the hands of men.

1.555mn men claimed their intimate female partner hit them with fists or a hard object vs 1.289m women claiming the reverse. 3.13mn men were slapped by their women vs 1.85mn in the reverse. Awful stats on any measure. Still it puts paid the notion that men are generally victims of other men once a blue moon. When it came to psychological intimidation around 20.5mn men were victims of it vs 16.5mn women.

The NIPSVS survey was conducted again in 2011 and revealed much the same trends.

If men must out themselves as abusers, perhaps female abusers should do likewise and male survivors should speak out just as women do.

According to a UK study,

“Male victims  (39%) are over three times as likely than women (12%) not to tell anyone about the partner abuse they are suffering from. Only 10% of male victims will tell the police (26% women), only 23% will tell a person in an official position (43% women) and only 11% (23% women) will tell a health professional.

The number of women convicted of perpetrating domestic abuse has increased seven fold since 2004/05. From 806 in 2004/05 to 5,641 in 2015/16…In 2015, 119,000 men reported to English and Welsh police forces stating they were a victim of domestic abuse. 22% of all victims who report to the police are male. In 2012, 73,524 men did…

Men don’t leave abusive relationships for various reasons – the top reasons being: concern about the children (89%), marriage for life (81%), love (71%), the fear of never seeing their children again (68%), a belief she will change (56%), not enough money(53%), nowhere to go (52%), embarrassment (52%), not wanting to take kids away from their mother (46%), threats that she will kill herself (28%) and fears she will kill him (24%). 

Of those that suffered from partner abuse in 2012/13, 29% of men and 23% of women suffered a physical injury, a higher proportion of men suffering severe bruising or bleeding (6%) and internal injuries or broken bones/teeth (2%) than women (4% and 1% respectively). 30% of men who suffer partner abuse have emotional and mental problems (47% women). Only 27% of men sought medical advice whilst 73% of women did.

The percentage of gay or bi-sexual men (6.2%) who suffered partner abuse in 2008/09 is nearly double the number for heterosexual men (3.3%). Lesbian women (12.4%) as a percentage also suffered far more partner abuse compared to heterosexual women (4.3%).

Ms Flores then goes on to say,

Don’t forget that, for 500 years in Europe (and still in many many countries) a woman saying “no” was punishable by death, legally. Show me one example of a man being legally executed for saying no to sex, and I’ll consider changing my position.

While men may not be at risk of being executed for refusing sex, find one Anglo, Asian or European country where women can be. Answer is none. It is only in certain cultures that practice female genital mutilation among other arcane laws that would seek to do so. A sect which feminists, who have no qualms shaming Western society, often choose to turn a blind eye to. It is hardly a credible argument that connects her belief that male silence and ignorance of female abuse is somehow linked to a claim of something that happened half a millennia ago.

None of this points to pleasant reading. Sadly it is this prevalence to continually point fingers at men for not doing enough. Unfortunately it is sometimes these same feminists who are busy trying to change ‘men’ so they stop being men. That somehow we should feel ashamed for being men. That we should take responsibility for every wrong doing conducted by a small minority and be brow beaten for not being the very men you are trying to force us not to be. Ms Flores you can’t have it both ways.