Inequality

Debunking Modern Monetary Theory (MMT)

Corp Profit

While the Dow & S&P500 indices grind back higher thanks to the US Fed chickening out on a rate rise in because the economy can’t handle it, many people still overlook the fact that core US profitability has tracked sideways since 2012. 6 years of next to nada. Sure one can boost profits by adding back unrealistic  “inventory adjustments” but the reality is plain and simple. If you search for inventory adjusted earnings they’re still marginally growing but there in lies the point. Real profits aren’t.

Record buybacks fueled by cheap debt is the cause for ‘flattered’ earnings. No growth in E  just falls in S.  EPS growth can look spectacular if you ignore 50% of US corporates have BBB credit ratings or worse.

The latest lexicon is “modern monetary theory” (MMT). The idea that the central banks just manipulate markets in perpetuity. Austerity is no longer needed. Central banks print money and extinguish debts the same way. Seriously why bother with taxation? The question is if it is meant to be a sure winner, why aren’t we all living in 5 bedroom mansions with a Mercedes Benz and a Porsche in the driveway? Why not a helicopter?

Logically if central banks can buy our way out of this debt ridden hellhole, why is growth so anemic? Why is European GDP being cut back? Why is German industrial production at its worst level since 2009? Why does Salvini want to jail the Italian central bankers? Why does the Yellow Vest movement in France carry on for its 15th consecutive week? If MMT works why would the EU care if the UK leaves with No Deal? MMT can solve everything for unelected bureaucrats in theory. Even £39bn can be printed

Last year the US Fed announced it had stopped reporting its balance sheet activity. In 2006 it stopped reporting M3 money supply. Curious timing when inside 2 years the world was flung into the worst recession since 1929. Transparency is now a danger for authorities.

The question boils down to one of basic sanity. All assets are priced relative to others. It’s why an identical house with a view in a nice neighborhood trades at a relatively higher price than one in a outer suburban back lot. The market attributes extra value even if the actual dwelling is a carbon copy. It is why currencies in banana republics trade by appointment and inflation remains astronomical. Investors don’t trust their ability to repay debts unless given extremely favorable terms. Market forces at work.

To put the shoe on the other foot, if all countries adopted MMT why bother buying bonds for retirement? The interest is merely backed by a printing press. Best consume 100% and save zero. The government has moved beyond moral hazard and hopes no one will notice

Take a look at Japan. It has $10 trillion in outstanding debt which is 2x its economy. The Bank of Japan owns 60% of that paper bought through a printing press. The market for JGBs is so manipulated that several Japanese mega banks have handed back their trading licenses because it has become worthless to be on that exchange. The BoJ thinks it can make whatever prices it chooses. The ultimate aim is to convert all of the outstanding debt into a zero coupon perpetual bond with a minor ‘administration’ fee in order to assign some value to it. To the layman, a zero coupon perpetual means you get no interest on the money you lend and the borrower is technically never required to pay the borrowed amount back. Such loans are made by parents to their children, not central banks to politicians (although one could be forgiven to think their behaviour is child like).

Yet the backdrop remains the same. Consumers are tapped out in many countries. Lulled by a low interest rates forever mentality, even minute rises to stem inflation (real is different to reported) hurt. My credit card company constantly sends emails to offer to transfer balances at 9% as opposed to the 20% they can charge if I don’t pay in full.

APRA recently relented on interest only mortgages after demanding it be tightened to prevent a housing bubble getting bigger. Now mortgage holders hope the RBA cuts rates to ease their pain.

Like most new fads, MMT can’t remove the ultimate dilemma that Milton Friedman told us half a century ago. Inflation is always and everywhere a monetary phenomenon. One can’t hope that putting money in the hands of everyone can be sustainable.

The one lesson that we should have learnt from GFC was that living at the expense of the future has rapidly diminishing returns. All we did was double down on that stupidity.

Do we think it normal that Sydney house prices  trade at levels the Japanese property bubble did in the late 1980s? Do we realize that we hold as much mortgage debt than Japanese banks did for a population 5x our size? Do we think that our banks are adequately stress tested? When an economy like ours has avoided recession for a quarter century, it builds complacency.

MMT is nothing more than a figment of the imagination. It preys on the idea that we won’t notice if we can’t see it. Unfortunately behind the scenes, the real economy can’t sustain the distortions. The French make the best modern day example of  a growing number of Main Streeters struggling  to make ends meet.

Central banks monkeying around with MMT smacks of all the same hubris of the past. It is experimental at best and reckless at worst. Markets can be manipulated for as long as confidence can be sustained. Lose the market’s trust and all of a sudden no amount of modern day jargon  can overcome what economists have known for millennia.

If you flood a global economy with cash at 5x the rate the economy can feasibly grow then it will ultimately require bigger and bigger hits to get the same bang before the jig is up. It’s a Ponzi scheme. Bernie Madoff got 120 years jail. Why not the central bankers?

So what is the best asset out there? Gold. It can’t be printed. It requires effort to discover it and dig it out of the ground. Of course the barbouros relic deserves to be consigned to the dustbin of history. If that were so Fort Knox might as well leave the gate open. The more it is hated only makes this contrarian investor want it more.

Why Ocasio-Cortez is the most powerful weapon in the Dem’s arsenal

Alexandria Ocasio-Cortez’s 5 minute “if I was a bad guy” routine in the House Oversight & Reform Committee went viral. 19m views. Such is the love of selective editing by the media that the video seemed to completely absolve her of the ridiculous Green New Deal plan which incidentally was pulled from her own website. She looked totally on message. However…

…Sadly, the unedited follow up saw the IFS Chairman Bradley A. Smith correct the record of the misleading questioning of AOC. She’s only 29 and on the fast track of learning the ugly world of politics.

The Democrats, as CM has said before, are missing a huge opportunity. She is a media darling. Instead of dragging her inside the tent and weaponizing her huge and growing following (especially millennials) with the pre-rehearsed party platform, Pelosi snubbed her from the Climate Change Panel and dismissed AOC’s manifesto as a “Green Dream.” Talk about eating your own kind. Better to have AOC on the panel to keep a leash on her media circle.

The longer they allow AOC to go off uncocked without the safety on, there will become a point where she passes the point of no return. The Democrats will lose probably their best asset. The longer she stays isolated, the more damage she will end up doing to the core of the party.

The Democrats need to show a united face in 2020. When lead candidate Kamala Harris endorses AOC’s plan without reading it, it only looks like a case of friendly fire. Is that what voters want to see? Expediency?

AOC is causing ructions. If the 70yo+ old guard party elites within the Democratic Party continue to treat her like a dotty 29yo, they’ll turn the weapon of their own making on themselves. That’s great news if you’re Republican.

If the Green New Deal bans air travel…

…CM looks forward to catching a train to Hawaii.

Alexandria Ocasio-Cortez also intends to get every fossil fueled powered car off the road in a decade. The US has 270 million registered vehicles, the overwhelming majority being petrol powered. The US sells 16-17mn cars a year (sadly slowing). Therefore in the US, 16 years would be required to achieve that target. That’s before taking into account auto maker EV capacity.

Global EV sales were 2.1mn last year. So her plan would take 128 years. That’s unfair as capacity would grow. Let’s assume auto makers could conceivably increase capacity by 2m every 2 years (plants take 2 years to build and those poor Congolese child slave laborers will be run off their feet digging for cobalt to go in the batteries) then conceivably 30mn.cumulative EV units could be built over 10 years. That’s 11% of her goal. Let’s not forget the fossil fuels required to power auto factories to satiate this plan not to mention the steel that goes into the bodies.

Global auto production is c.80mn units. That assumes that the world’s auto makers will snub the ROW to meet her demands.

Socialist mathematics is never quite up to the task. Is Ocasio-Cortez was a true patriot she’d demand GM, Ford & Tesla be the sole products that consumers are allowed to buy to support domestic jobs. They’ll need them because she’ll be causing the lay offs of a shed load of Boeing line workers if planes are banned.

When she finally gets into the Oval Office we should look forward to her catching Ground Force One from 1600 Pennsylvania Avenue Station to travel the country and tell Americans how much better things have become.

Not what you think

In the age of identity politics this hiring advert from McDonalds Sweden is on the money.

The fine print says “We hire individuals. We don’t care what your surname is. Because ambition and determination have nothing to do with your nationality.”

Good on McDonalds for bucking the insidious virtue signaling that pervades so many corporates today.

”We see the good in men”

The Egard watch company took the opposite view of the Gillette campaign. So much for equality!

Which is more important?

Which is more important? To save the planet from certain doom in 12 years or ensure gender equality in its fight? CM thought all hands were required at the pump? No, no sorry, we can’t continue the fight to stop global warming unless we have 50/50 gender balance. We’ll get to that.

Sydney’s socialist Lord Mayor Clover Moore will host the 2020 Women4Climate summit. There aren’t too many worse places to host a global climate summit if reducing CO2 emissions is a must. A quick geography lesson should make that abundantly clear. European and African delegates will be required to fly 20+ hours to get here. Not to worry, their fossil fuel use is justified for the betterment of all?

The irony in the fight for ‘identity representation’ in climate science was debunked by an internal UNIPCC survey a decade ago. The outcome was simple – it noted diversity (gender and ethnicity) were prioritized over ability. Several delegates without scientific credentials gave the feedback they were way out of their depth and could not contribute any value to the process yet were asked to do so anyway. So much for the benefits of equality over ability?

So there you have it. A decade ago the UNIPCC was hoisted by its own identity petard. Result – fail. The Delinquent Teenager, written by Canadian investigative journalist Donna Laframboise chronicled how the IPCC participants are picked by governments, not for their scientific knowledge and expertise, but for their political connections and for “diversity.”

One wonders how long it will be before we see #insertidentity4climate movements fight for their representation in tackling climate change. Then we’ll have absolute proof it’s all about them not the planet. Just take a look at what Women4Climate are fighting for – most of it is not about climate change. Surprised?

Perhaps we should ask whether  Judith Curry, Joanne Nova or Jennifer Marohasy will be sent invites to the summit?!?

Mainstream media or better known as…

The mainstream media (MSM) can’t contain themselves. So deep in the cesspit of their own making that clickbait seems to have replaced responsible journalism for good. CNN’s Jim Acosta may well have the answer as to why a growing number of people view the MSM as the enemy of the people. When several journalists openly call for the doxing of school kids, where are the repercussions? What happened to unbiased, objective reporting?

The recent Lincoln Memorial showdown between a Native American Nathan Phillips and a Covington Catholic High School student, Nick Sandmann, perfectly fit a media narrative – Trump supporting, MAGA hat wearing, white Christian youth actively seeking and attacking a frail old indigenous man. Lost on the media were the earlier chants of the Black Hebrew Israelites calling the kids, “crackers, faggots and pedophiles.” Of course obscenities are a one way street if those attacked tick the wrong identity boxes.

Why doesn’t the media get that everyone is a potential movie producer these days? The truth eventually gets out, sadly after a lot of damage has been done. Does the MSM not get that persistent lying has pushed trust in the media to record lows?

If one watched the entire clip, the ‘activist’ Nathan Phillips went looking for a fight to conflate his agenda. He has been an activist for many years over a multitude of causes. Most activists have little or no tolerance for different views or opinions.

CM, like most of us, don’t know Nathan Phillips (or Nick Sandmann for that matter) from a bar of soap. Does being a First Nation’s person give him a free pass from polite discourse? If someone banged a drum in your face without provocation, would you rank your level of disapproval proportionate to the aggressors identity? Does donning a MAGA hat automatically mean the wearer is a racist or a bigot?

Yet the media perpetuates these falsehoods. The editorial boards of the MSM need a serious class in journalistic ethics. For all of the promises inscribed on the mastheads, few if any live up to their motto. While some came out after to apologize for jumping the gun, time and time again they face no recriminations for their actions.

Is it right that Sandman received death threats? What if some nut job actually tracked him down and took his life? Would the media take responsibility for their fictitious reporting or just plead an honest mistake. You know the MSM has screwed up when even CNN demands retractions.

We are approaching dangerous territory. Identity politics has become so poisonous that there will come a time when the dam will inevitably burst. Even if some think Covington students are out of touch with modern America, does the MSM truly believe they are setting a high watermark for integrity and an higher moral authority to show them the error of their ways?

To turn the argument on its head, had Phillips been white and wearing a MAGA hat banging a drum in front of indigenous school kids, the media would have been spot on in identifying the aggressor. Sadly they played the man and not the ball.