Crisis

FFS

So brainwashed are some that confessing climate sins to pot plants is a thing. In response to questions, the Union Seminary replied,

We are in the throes of a climate emergency, a crisis created by humanity’s arrogance, our disregard for Creation...Far too often, we see the natural world only as resources to be extracted for our use, not divinely created in their own right—worthy of honor, thanks and care.”

CM is going straight home to apologize to the weeds in the garden for continually trying to ruin their equal right to share this planet.

Honestly, how can any skeptics possibly take these people seriously? Seriously!

Ford downgraded to junk

This week, Ford Motor Co’s credit rating was downgraded by Moody’s to junk. $84bn worth of debt now no longer investment grade. It will be the first of many Fortune 500s to fall foul to this reality. In 2008, there was around $800bn of BBB status credit. That number exceeds $3.186 trillion today.

CM has long argued that the credit cycle would be the undoing of the economy. For too long, corporates binged on easy money, caring little for credit ratings because the interest spreads between AAA and BBB were so negligible. The market ignored risk and companies went hell for leather issuing new debt to fu buybacks to artificially prop up weak earnings to give the illusion of growth.

Sadly this problem is likely to cause widespread sell offs by companies/investors which must stick to products (as woefully yielding as they may be) with an investment grade, exacerbating the problem of refinancing debt close to maturity. The thinking during easy credit times was simple – refinancing could be done with low interest rates because there was no alternative.

This is problematic for three reasons:

1) under the Obama era, much of the newly issued debt was short term meaning $8.4 trillion arrives for refinancing in the next 2.5 years, crowding out the corporate market.

2) more than 50% of US corporates are one notch above junk status. Refinancing will not be a simple affair.

3) more and more investment grade debt will be driven to zero or even negative yields as a result further exacerbating the problems for insurance companies and pension funds dealing with massive unfunded liabilities.

Last year, in relation to unfunded liabilities at US public pension funds, CM wrote,

California Public Employee Retirement System (CalPERS) lost around 2% of its funds in 2015/16. The fund assumed an aggressive 7.5% return. Dr. Joe Nation of Stanford Institute for Economic Policy Research thinks unfunded liabilities have surged to $150bn from $93bn in the last two years. He suggested the use of a more realistic 4% rate of return last year. At that rate, CalPERS had a market based unfunded liability of $412bn (or the equivalent of 2 years’ worth of California state revenue). At present Nation now thinks the number is just shy of $1 trillion using a 3.25% discount rate. He expects that the 2017 data for CalPERS will be out in a week or so which should give some interesting perspective as to how much deeper the pension hole is for Californian public servants.

N.B. California collects $232bn in state taxes annually in a $2.3 trillion economy (around the size of Italy).”

This is just California, which in the last 8 years has seen a 2.62-fold jump in the gap between liabilities and state total expenditures.

Unfunded liabilities per household. In California’s case, the 2017 figure is $122,121. In 2008 this figure was only $36,159. In 8 years the gap has ballooned 3.38x. Every single state in America with the exception of Arizona has seen a deterioration.

Switching to Illinois, we have a case study on what happens when pension funds go pear shaped.The Illinois Police Pension is rapidly approaching the point of being unable to service its pension members and a taxpayer bailout looks unlikely given the State of Illinois’ mulling bankruptcy.

Local Government Information Services (LGIS) writes, At the end of 2020, LGIS estimates that the Policemen’s Annuity and Benefit Fund of Chicago will have less than $150 million in assets to pay $928 million promised to 14,133 retirees the following yearFund assets will fall from $3.2 billion at the end of 2015 to $1.4 billion at the end of 2018, $751 million at the end of 2019, and $143 million at the end of 2020, according to LGIS…LGIS analyzed 12 years of the fund’s mandated financial filings with the Illinois Department of Insurance (DOI), which regulates public pension funds. It found that– without taxpayer subsidies and the ability to use active employee contributions to pay current retirees, a practice that is illegal in the private sector– the fund would have already run completely dry, in 2015…The Chicago police pension fund held $3.2 billion in assets in 2003. It shelled out $3.8 billion more in benefits to retired police officers than it generated in investment returns between 2003 and 2015…Over that span, the fund paid out $6.9 billion and earned $3.0 billion, paying an additional $134 million in fees to investment managers.”

Therefore Ford’s downgrade to junk will have the effect of repricing over a decade of misplaced central bank policy across all markets. The dominos are only beginning to fall. The market can absorb Ford’s downgrade but not if it has to deal with the panic of dozens like it.

CM has long been warning of GE. Despite being the world’s largest stock in 2000, it is 1/5 the size today, trades in negative equity, wasted $45bn on share buybacks in 2015/16 and were it be classified as junk would increase the pile of junk by 10% on its own. Broadcom and American Tower are other monsters ready to be hurled onto the ratings scrap heap.

Buy Gold. The US Fed will likely embark on QE. It requires an act of Congress to approve the purchase of equities but don’t be surprised if this becomes a reality when markets plunge.

This will be the reset of asset prices which has been long overdue thanks to almost two decades of manipulation by authorities. It has 1929 written all over it. Not 2008.

Something kids will fear way more than climate change

Image result for teenagers smartphones selfies climate strike

Is there one thing greater than climate change that can cause children irreparable harm? Yes. Perhaps the kids attending the school climate strikes tomorrow ought to consider that the very smartphone devices that they can’t put down are also harmful to the environment. Will these kids happily give up their smartphones in a quest to save the planet? Will these kids be willing to give up Snapchat, Instagram, Facebook and Twitter to save their own lives? Not in a million years.

An abstract of a report on the impact of technological devices on GHG emissions by Belkhir & Elmeligi, titled, ‘Assessing ICT global emissions footprint: Trends to 2040 & recommendations is as follows,

In light of the concerted efforts to reduce global greenhouse gas emissions (GHGE) per the so-called Paris Agreement, the Information and Communication Industry (ICT) has received little attention as a significant contributor to GHGE and if anything is often highly praised for enabling efficiencies that help reduce other industry sectors footprint. In this paper, we aim at assessing the global carbon footprint of the overall ICT industry, including the contribution from the main consumer devices, the data centers and communication networks, and compare it with the to the total worldwide GHGE. We conduct a detailed and rigorous analysis of the ICT global carbon footprint, including both the production and the operational energy of ICT devices, as well as the operational energy for the supporting ICT infrastructure. We then compare this contribution to the global 2016-level GHGE. We have found that, if unchecked, ICT GHGE relative contribution could grow from roughly 1–1.6% in 2007 to exceed 14% of the 2016-level worldwide GHGE by 2040, accounting for more than half of the current relative contribution of the whole transportation sector. Our study also highlights the contribution of smartphones and shows that by 2020, the footprint of smartphones alone would surpass the individual contribution of desktops, laptops and displays. Finally, we offer some actionable recommendations on how to mitigate and curb the ICT explosive GHGE footprint, through a combination of renewable energy use, tax policies, managerial actions and alternative business models.”

The study found that the relative emissions share of smartphones is expected to grow to 11% by 2020, exceeding the individual contributions of PCs, laptops and computer displays.

In absolute values, emissions caused by smartphones will jump from 17Mt to 125Mt of CO2 equivalent per year (Mt-CO2e/yr) in that time span or +730%. Most of this occurs at the production stage. Nevertheless with mobile carriers encouraging shorter cycles to upgrade this will only get worse.

ICT will grow from 215Mt-CO2e/yr in 2007 to 764 MtCO2-e/yr by 2020, with data centres (storing all those photos) accounting for about two-thirds of the total contribution.

For comparison purposes, the entire carbon footprint of Australia was about 550 MtCO2-e in 2018.

CM guesses these kids ought to be walking to school too. It is a great lesson in what real sacrifice means. At least they got the day off school.

WeWorked

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WeWork has delayed the IPO. According to Zerohedge, the initial appraisal value of $47 billion appears to be entering the realm of $10 billion. This has ‘canary in the coalmine‘ written all over it. The kaleidoscope of razzle-dazzle in the free money world looks to have stopped spinning.

The company looks toxic. Most people point fingers at the co-founder Adam Neumann,  who, according to WSJ,  reportedly sold $700 million in a mixed debt and equity transaction. CM may be a contrarian, but even he sees the pre-IPO sale as somewhat suspicious. Selling part of your stock as part of an IPO is one thing. Doing it prior doesn’t pass the pub test.

How can IWG plc (better known as Regus) make profits (albeit sideways) with the same concept? 2018 IWG revenue and profit after tax increased 51% over 2014 levels. Revenue increased 13.5% since 2016, but post-tax profit slumped 24%.

WeWork seems like the Tesla of the office space world. Huge promises but the numbers are struggling to stack up. Maybe WeWPresumably, due to a combination of intensifying shared office competition, start-ups spoilt for choice or simply failing to grow.ork should leap into insurance as a way to generate cash flow like Tesla has started to do?

Adult candy dispensers

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Only in America. The Alpine Shooting Range has taken Walmart’s decision not to sell handgun ammo into its own hands. It is now selling it by the pound from a dispenser like we used to buy candy.

Yet what of the stats of gun crime in America?

There are 50,000 (mostly individual) gun stores in the US. 95% of firearm related murders are committed with handguns. Statistically, America would be better off banning sales of pistols rather than AR-15s. Say automatic rifles are banned from today. What will change? Handgun murders will move closer to 100%. Good luck buying back 300m+ guns in America.

According to the Crime Prevention Research Center, murders in US appear to be very concentrated: 54% of US counties (representing 11% of the population) in 2014 had zero murders, 2% of counties made up 51% of the murders, ironically in states with the strictest gun controls – Illinois, NY and California.

Yet America has had decades of periods where governments had majorities in both houses and nothing was done on gun control. We’ve experienced Orlando, Las Vegas, Sandy Hook, Columbine, Parkland, Fort Hood, El Paso, Dayton, San Bernardino, Virginia Tech, Geneva County, Aurora…the list goes on.

Moves by sporting goods stores like Dick’s to ban AR sales and raise the age limit to 21yo looked sensible from the outside. However, they had multiple massacres over decades to make that call. The current CEO has been in charge since 1984. Why the u-turn in his conscience? Indeed the company did temporarily suspend sales of ARs after Sandy Hook in 2012 but kept retailing them at the company’s Field & Stream outlets before selling them again at Dick’s. Inconsistent.

Recall the Parkland, Florida school shooting. At the time media outlets went all guns blazing on the National Rifle Association (NRA), CM warned that it most likely would cause a knee jerk reaction in the opposite direction. We speculated that the hike in membership fee likely reflected a surge in members. As tragic as the Parkland massacre was, CM said that ‘shaming’ NRA members en masse would only make them dig in deeper. As it turns out searches for NRA membership surged 4900% immediately after the tragedy. People are sick and tired of being bullied into feeling guilty about things they haven’t caused.

39,773 died from gun-related death in America in 2018. The highest number in 20 years. Statistically speaking ‘massacres’ accounted for only 106 deaths in 2018 or 0.27% of the total. Yet media attention focuses on it.

To put it into perspective the total number of overdose deaths involving heroin from 2002 to 2015 jumped 6.2-fold in the US. Automobiles killed around 32,000 people last year or a little over 2x that of heroin overdoses. When adding non-methadone opioids (illicit fentanyl) overdose that number surged to 20,000, a 33% YoY jump on 2014 and 5.9x 2002. Why is it happening? The problem for many prescription painkiller users is that once their bottle ends, the addiction doesn’t stop meaning many switch to heroin to get the same ‘opioid’ hit.

We armchair politicians can sit back and shake our heads at America. Yet until there is a will of the people to change the laws, expect more massacres to happen. Name an American politician that is willing to repeal 2A as a cornerstone election campaign policy. There is your answer. Will the Democrat nominees raise their hands for the repeal of 2A? Safer to raise hands at free healthcare for illegal immigrants. 2A is toxic to touch. Sadly innocent people are dying for no reason.

As for Alpine Shooting Range, it is doing the auld American thing of embracing capitalism within the law.

Banker Buster?

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Before the GFC in 2008, bank shares across the globe were flying. Financial engineering promised a new paradigm of wealth creation and abundant profitability. They were unstoppable.

However 12 years later, many banks look mere shadows of their former selves. We are told by our political class to believe that our economies are robust and that a low-interest rate environment will keep things tickety-boo indefinitely. After all the wheels of the economy have always been greased by the financial sector.

If that were true, why does Europe’s largest economy have two of its major banks more than 90% off the peak? Commerz has shrunk so far that it has been thrown out of the DAX. Surely, Japan’s banks should be prospering under Abenomics so why are the shares between 65% and 80% below 2007 levels?

Ahh, but take a look at those Aussie beauties! How is it they have bucked the global trend? How can Commonwealth Bank be worth 6x Deutsche Bank?

Although we shouldn’t look at the Aussie banks with rose-tinted glasses they have mortgage debt up to the eyeballs. Mortgages to total loans exceed 62% in Australia. The next is daylight, followed by Norway at 40%. Japanese banks, before the bubble collapsed, were in the 40% range. CM wrote a comparo here. There is a real risk that these Aussie banks will require bailouts if the housing market craps out. It carries so many similarities to Japan and when anyone ever mentions stress tests – start running for the hills.

If you own Aussie banks in your superannuation portfolio, it is high time you dumped them. Franked dividends might be an ample reason to hold them, but things in finance turn on a dime and this time Australia doesn’t have a China to rescue us like it did in 2008-09. More details contained in the link in the paragraph above.

In closing, Milton Friedman said it best with respect to the ability of central banks to control outcomes,

“… we are in danger of assigning to monetary policy a larger role than it can perform, in danger of asking it to accomplish tasks that it cannot achieve, and as a result, in danger of preventing it from making the contribution that it is capable of making.

 

Okjökull lost glacier title in 2014. UN admits not due to climate change. Media knows better.

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The Okjökull glacier used to stretch six square miles (15 square kilometres). Now environmentalists have dedicated a plaque to mourn its death. Sadly, it has been in the morgue (lost its title as a glacier) since 2014. Why weren’t the plaque makers firing up the molten brass to fill the die-cast 5 years prior? All about the narrative, not the science behind glaciers. CM understands why Iceland’s Prime Minister Katrin Jakobsdottir might want to virtue signal in this way but why did it require UN High Commissioner for Human Rights Mary Robinson to burn fossil fuels and fly all the way to morally preen? This is so typical of the obsession to misrepresent reality.

According to the UN Chronicle, “The sudden surging of glaciers is not related to climatic fluctuations, and surges can take place even at times when glaciers retreat. This is the usual behaviour of some glaciers and can not be evidence of an impending surge… unfortunately, direct observations of a change in the movement of a glacier at the onset of a surge are still very rare, and the causes for surges are not yet clear…It should be emphasized that the problem of climate change is extremely difficult to understand, and it has still not been possible to know what factors in the past decades — natural or anthropogenic — have caused the warming. There are still many uncertainties in solving this problem. IPCC estimates are rather wide in their range of accuracy and, therefore, cannot predict with confidence…at least not in the coming decades and centuries.

In Greenland, the Jakobshavn glacier around 2012 had been retreating about 1.8 miles and thinning nearly 130 ft per annum. In the past two years, according to a study in Monday’s Nature Geoscience, it started growing by the same amount. “A natural cyclical cooling of North Atlantic waters likely caused the glacier to reverse course“, said study lead author Ala Khazendar, a NASA glaciologist on the Oceans Melting Greenland (OMG) project. Khazendar and colleagues say “this coincides with a flip of the North Atlantic Oscillation — a natural and temporary cooling and warming of parts of the ocean that is like a distant cousin to El Nino in the Pacific.

Approximately 11% of  Iceland’s total area of roughly 100,000 km2 is covered by glaciers. Vatnajökull is the largest glacier mass in Europe. It covers an area of roughly 8,000 km2, and is 950-1000 m where it is thickest. Its mean thickness is a little less than 500 m, and the total ice volume of Vatnajökull is probably in the order of 3,300 km3.

Glaciers on Iceland had their maximum Little Ice Age extension over 1890-1920. Glacier variations in Iceland since 1930 showed a clear response to variations in climate during the period: Most non-surging glaciers retreated strongly during the early half of the monitoring period, following the warm climate between 1930 and 1940. A cooling climate after 1940 led to a slowing of the retreat and many glaciers started to advance around 1970. Warming climate since 1985 led to an increased number of retreating glaciers. The estimated coverage loss per year is about 0.2% overall, which amounts to 20-30 km2 becoming ice-free every year. If the present trend continues, most glaciers on Iceland will have melted away within 500 years.

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Major surging glaciers of Vatnajökull. Figure source: Björnsson et al. (2003)

A surge-type glacier experiences a dramatic increase in flow rate, which can be 10-100 times greater than normal flow rates. The velocities of surge-type glaciers can exceed 100 m/day. About 26 Icelandic glaciers are known to surge.  Glacier variations in Iceland have been recorded systematically since the 1930s.

One of the best known surging glaciers in Iceland is Brúarjökull which has had major surges in 1810, 1890 and 1963/64.  During the 1890 surge, the ice margin advanced about 10 km over a period of few months. Subsequent to the surge, the ice front became largely stagnant and the glacier retreated until it surged again in 1963-1964.

So while the mainstream media has got the desired effect of whipping up hysteria of receding glaciers caused by human-created CO2 based global warming, there is little effort to reference their own sources, such as the alarmist UN. How ironic it is that the UN doesn’t have any confidence in why these things happen yet the media seemingly does as long as it fits a narrative.

The plaque says 415ppm of C02. That’s right. CO2 is 0.0415% of the atmosphere. CM hopes his grandkids look at me one day and say, “why couldn’t people do simple mathematical fractions?