Scandal

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.

ABC protects one of its own

Good to see the ABC true to form in allocating our tax dollars to look after its own. So if money is so tight, why would it allocate those precious dollars on Clementine Ford who has ‘left’ Nine? What value could she add to convince us to crank up funding? CM wrote a piece on ABC funding and its inefficiency. It’s diabolical.

Ford’s only claim to fame is radical feminist profanity. She has an uncanny ability to call fellow journalists and politicians ‘c*nts’, tweeted “All (non compliant) men must die” among other balanced rhetoric worthy of taxpayer funding.

The ABC has proved that it was already shockingly run under the recent leadership. Now without anyone at the helm it’s open season. To the ABC’s credit, these decisions are made in good faith that the incoming government will grant more funds and any mishaps will he quickly forgotten. Impartiality and ABC are mutually exclusive terms.

How hardcore are you really?

Once again the pill testing argument will rear it’s ugly head after 14 Australia Day revelers were hospitalized at two events, the HTID and Electric Gardens concerts. 6 remain in critical condition. At what point will we hand responsibility over to ‘legal’ adults?

If voting age party-goers are caught with ‘illegal’ substances then charge them accordingly. If people don’t like the law then put action behind a proposal to change it. Despite police sniffer dogs, people smuggled in drugs in condoms and ziplock bags presumably hidden in the nether regions. Coffee grounds were used to throw off the scent.

The real question is if one is hospitalized, why should tax payers pick up the tab for their selfish, reckless behaviour? Would it be a deterrent to let them know that any medical treatment (likely expensive) would not be covered by the state? Put measures in place to ensure the bill is paid for out of future income tax or lowered dole payments. Then let these adults work out the risk reward ratio of taking illicit drugs. Instead of having OD survivors tell horrid tales, they might talk of the financial penalties that followed which have made life considerably tougher than going cold turkey.

If you take illegal pills, don’t say we didn’t warn you. Let’s see how hardcore you really are.” That should be the slogan. Flash up the average cost of an OD treatment on the big screens.

Hottest temperatures ever in Australia?

Jo Nova puts together a simple summary of the history of heatwaves in Australia. It is worth reading. Even our Bureau of Meteorology ignores records going back to the 1890s because it fails to fit a narrative. Worse, South Australia (SA) is suffering from blackouts thanks to loony green renewable policies which have seen spot electricity prices surge to $14,500/MWh. Wretched coal fire powered states, NSW & QLD, are in the $105-$110/MWh range. What was the rationale that renewables are cheap, affordable and reliable? The irony is that SA is relying on diesel generators for back up. Thank God for fossil fuels!

Not to worry. We have the world’s elites on 1,500 private jets landing in Davos to tell us we need to save the planet! Their cooler heads will surely prevail.

 

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.

Love, Sex & War

Love, Sex and War. Changing Values 1939-45

In the process of researching the backdrop to publishing the important memoirs of a family member that served in WW2, CM stumbled over some fascinating data with respect to infidelity/adultery during wartime, one of the topics that surfaced in his letters. Suffice to say reading John Costello’s ‘Love, Sex & War‘ there are some eye-opening statistics to come from the book. One wonders whether these toxic men, supposedly laying their lives down to protect the women at home, possibly fathomed this into the equation when they enlisted.

Costello notes,

There were the notorious ‘war-brides’ called ‘Allotment Annies’ who hustled departing soldiers into marriage to collect the twenty dollars a month the US Government automatically allotted to servicemen’s wives. With a private’s pay rising to fifty dollars a month for overseas service, some greedy ‘Annies’ took on four, five, and even six husbands. These unscrupulous women made bigamy a business, and in return for V-mail letters to GIs overseas they lived very well off the pale blue-green Government cheques. Some, with the financial acumen of actuaries, specialized in airmen, anticipating that their higher mortality rates would increase their chances of collecting the ten thousand dollar jackpot Government insurance cheque issued if their husband was killed in action.

Elvira Taylor achieved national notoriety as the ‘Allotment Annie’ who operated out of Norfolk Virginia and specialized in sailors. She managed to snare six live ones and was about to hook a seventh when she was arrested as a result of two of her ‘husbands’ starting a fight in an English pub when they showed each other her picture as their ‘wife.’ When they had been cooled off by the military police, they joined forces to expose the duplicitous Elvira, who was discovered by checking the navy pay records to have contracted four other bigamous marriages.

When it came to divorce, Costello went on to write,

One out of every three American servicemen were married by the end of the war. There was a doubling of petitions for divorce by 1945 when, for every hundred couples getting married, thirty-one were legally separated…The wartime divorce phenomenon afflicted British servicemen to the same increasing degree. The number of adultery petitions filed after 1942 rose by a hundred per cent each year above the 1939-42 average. The final twelve months of the war also saw a spectacular eightfold jump in the number of husbands who were suing for divorce on the grounds of adultery. By 1945, two out of every three petitions were being filed by men, whereas until 1940 female petitions had been in the majority.

So much for the patriarchy we hear about incessantly. To think of those brave souls that laid down their lives for those who were only interested in their deaths.

Brexit – Jonathan Pie does it again

Whether you’re a Remainer or Leaver, Jonathan Pie explains in his trademark profanity-laced way why the Brexit deal of UK PM Theresa May is such a dud. What is the point of having a referendum which garners the highest ever voter turn out only to throw it back in the faces of both sides? In what world would a collective constituency want their parliamentarians to vote for a deal that makes everyone worse off? Why did May fold to every EU demand? She should have channeled the leader across the pond as to how to negotiate with Brussels.

Last week the Bank of England (BoE) ditched its independence charter to aid-and-abet the PM by producing a document stating a “No Deal” Brexit would hit UK economic growth by 8%.  What a joke. Would the EU seriously try to stitch up the economy of the second largest car market for German auto makers? It is preposterous in the extreme. Obama threatened in 2016 that the 5th largest economy would be at the back the queue when it came to trade deals. Trump would happily move it to the front. Canada and Australia too…can the BoE honestly come up with credible reasons why the ROW would spurn the UK in unison to get to an 8% slump?

Why only now has the BoE discovered this potential economic apocalypse? After all, the scare stories leading into the referendum about how the UK would plunge into the abyss should “Leave” succeed have simply not manifested. None of it. Why believe it now when its forecasts have been so off reservation? After all it did not advise the HM Treasury not to dump all of its gold at the very bottom.

Yet the Brits aren’t so stupid to see the deal being offered is the only one going. They have heard Minister for European Parliament (MEP) Guy Verhofstadt demand that member states hand over more sovereign powers to the EU. They saw EC President Juncker stagger blind drunk across a NATO stage BEFORE the dinner. There was little doubt in their minds when they checked the ballot square as to what was at stake. A No Deal Brexit is the one that should be pursued. The EU has so many disaffected member states that it is the one that needs to play nice with the UK, not the other way around.

 

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Take this chart, which shows the level of apathy member states have to show up and vote at European Parliamentary elections. Were the Brits so gung-ho to stay in the EU, why have only one-third of Brits ever shown up to express their love and affection for federalism? Is it any surprise that Italy, Spain, France & Greece have shown similar disdain over time as the EU fails to deliver for them? Surely the trend since 1979 has shown the underlying mood of member state constituents about how they value EU membership.

Perhaps Verhofstadt put the Brexit discussion into perspective (from 6:20) – after member states ratified the May plan in 38 minutes (a sure sign it is a great deal for the EU) – when he stated the hope that in the not too distant future, “a new generation of British…decide to come back into the great political European family

Tells us all we need to know. This week will show beyond a doubt about whether the island nation will have the very democracy it has shed so much blood to defend will be protected.

As Baroness Margaret Thatcher said of Europe,

 “During my lifetime most of the problems the world has faced have come, in one fashion or other, from mainland Europe, and the solutions from outside it.”