Oh, No! Not Another One?

 

Quite often you can see things otherwise invisible when you look at a big picture.. For example if you were flying from San Fran to Bangor, ME, no one in your interactions along the way would be able to tell you what was happening across the entire route in real time.  You simply trust that and hope all will end well.

But if you are at a console watching air traffic control across the entire United States, and noticing how suddenly those little plane shapes disappear whenever they cross the Mississippi anywhere between Memphis and Cedar Rapids, you know from that anomaly that something must be wrong… You don’t know what, but only you see it from looking at the macro picture, a hole developing into which those entering, never return.

Which is why some of us like to look at macro math.  Basically it is stuff that no one else thinks is important and for most of daily living, they are correct.  But if you are used to looking at the same picture every day and one day it is different, a person familiar would notice that.  No one else would.  Imagine waking up one morning and walking through your house and quickly looking up from your footsteps, seeing that portrait you have hanging on the wall has its subject facing left, instead of right… You would be unnerved, right?  Yet a visitor to your place, would not notice.

Here is where we are. We are already in a free-fall towards another financial crises which if not addressed quickly, will repeat 2008-9 and possibly be bigger. It is strongly possible that this summer quarter’s financial reports leaking out in October, will cause a crash similar to what happened 8 years ago….

I’m sure this is a surprise to you as it was me. I sure you are as skeptical of my telling of it, as you would be my insisting I saw my portrait whose image had been flipped during the night..  Main stream’s financial media and both political parties are still asleep and dreaming of the promise that the economy is buoyed and is roaring back.  Just like how we all get surprised when acquaintances of ours, actively healthy people, suddenly confide they’ve been diagnosed with terminal cancer.  That is the cruel side of life. Sometimes the outside does not properly show the hidden condition on the inside.

What has not been shown in all our financial reports, is the massive amount of quantitative easing buoying these glowing results.  QE for short, is where government prints money costing nothing, and then spends it on something. They could loan it.  They could donate it.  They can buy stock with it. They can do anything with printed money that can be done with circulated money… And in a recession, this policy works… (which is why we do it)… Businesses get loans and stay afloat; banks get loans and keep their doors open. But the last recession was 8 years ago, and across the world’s financial markets, certain actors still are doing it…

So in our newscasts we appear to have a great recovery just before the elections. Our stock market is high, our unemployment is quite low, and our corporate profits continue to rise.  Is their any other way to measure it?

But does it make a difference to you if the reason the stock market is high because many of the stocks are now owned by government entities involved in quantitative easing, bought at low times to boost prices keeping plummeting crashes from continuing?  Does it make a difference that corporate profits are continuing because of massive increases in corporate debt primarily taken on to avoid showing a negatively balanced profit sheet, debt often owed to government entities which bought them up when no one else would to help keep their prices high… Does it make a difference if I told you that despite all the newly minted private sector jobs now being generated at reduced wage levels from skeletons of the older jobs now gone, the entire total income now being generated by all those working, is less per person than was before the great recession of 2008-9?  But you knew all this, right?

When put all together, the bottom line is that our economy is actually in a recession if measured by “real” corporate profits being down,  by “total amount of generated wages” impacting the economy being down,  by corporate “revenue streams” across our business world, being down,  by our “stock market minus QE infused purchases” being down,… but the supports provided by QE hide these facts from us all.  And it is not just here in the US. It is even a bigger global problem. There is the EU who prints money for every Southern European economic crises.  There is Japan who prints money to prop up everything. There is the ongoing problem in China. There is Britain who is now pumping to keep Brexit from collapsing its economy. Globally in just one quarter, we witnessed QE soar to never-before-seen levels. and it hasn’t stopped climbing.

Have you noticed how even with bad economic news, stocks go up?  That should not be — a reality which is obvious to grasp when parsed this way….

“Uh-oh, looks like you are going to lose a lot of money/  Oh! No problem, I’ll just buy more stocks at a higher price then..”  Time in and time out, this is exactly what happens.

QE is buying those stocks… and we’ve reached the level where there are so many, there is no one there to sell them too… Bond yields are negative and yet they keep buying.

“We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30% of global government debt at negative yields, combined with quantitative easing on a massive scale” —Chairman Lord Jacob Rothschild of Rothschild Investment Trust

Notice how across the globe, governments are now buying up $180 billion a month or $30 billion per month higher than all the QE in the world at the peak of the Recession (2009).

Now jump to the crux of the problem.

Did you notice the climb of negative yield debt just in the past 8 months. Aren’t negative yields dangerous?

Can be. Already one third of all sovereign debt yields negative interest rates. That means that investors are effectively paying borrowers to lend to them. The Bank of Ireland and Royal Bank of Scotland already charge depositors interest, as opposed to paying depositors interest.   That’s bizarre. Not to mention unsustainable.

At the current rate of decline, the entire global market will be in subzero land by the end of the year.

 

Around 45% of the global “fixed income” market is now “compromised” by central bank buying.” 

This is compounded by the new fact that nearly half of the bond buyers in the world don’t care about price because they print money out of nothing.   So what does this look like? Take Japan, for example.

Japan’s biggest banks are running out of room to sell their government bond holdings, pushing the central bank closer to the limits of its record monetary easing.   Finding willing sellers is a headache for Governor Haruhiko Kuroda as the central bank prepares to review policy at next month’s board meeting, amid growing concern among economists that he has few tools left to revive the economy. Record bond buying has already saddled the Bank of Japan with more than a third of outstanding sovereign notes, draining liquidity from the market and making it more volatile.

As proof of this trend, on August 9th, the Bank of England couldn’t find enough bonds to buy.

In plain terms it is as if you were now living solely off borrowed money and constantly getting new loans just to make the payments on your past due old loans and then suddenly, not being able to get any new loans anymore……

As we can see from the first chart above, Japan’s “need” is near $90 billion a month, which means once the loans potential dries up… there is an $90 billion dollar hole into which everything collapses…

Don’t underestimate what is happening here, the BoJ is buying a lot more than just sovereign bonds.

The Bank of Japan’s controversial march to the top of shareholder rankings in the world’s third-largest equity market is picking up pace.  Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings.

 

Japan may be the extreme example, but they are hardly alone.  

The balance sheet assets of the world’s six major central banks hit a new all-time record, increasing to $16.9 trillion from $4.9 trillion 10 years ago, a 239 percent increase.  All the major global central banks are buying up financial assets to the point that global liquidity is drying up. In other words, the central banks are becoming the markets.  Markets have become so distorted by central bank activity that they are no longer transmitting very useful information about the economy at all.”

Bad as this may sound, this is still not the real problem  Here is the REAL scary problem. These low negative rates in safe bonds are sending buyers out in droves to the unsafe markets to find any yield, even small ones of 5%.  In these markets the risk looms so large for so small a payoff, that one day’s trade can wipe a years of yield right off the books.

Volume in emerging markets have soared double their previous record in volume sold since March.

But that is just one example

Junk bonds, rallied 48% this year, even while junk bond defaults have hit five year highs.

Corporate debt.

Corporations are issuing record amounts of debt, and investors and QE are gobbling it up.

Companies worldwide are poised to raise more than $100 billion so far this month, the most for the period in Bloomberg data going back to 1999…. The average yield on sterling-denominated corporate bonds has fallen to a record-low 2.19 percent, according to Bank of America Merrill Lynch index data. Globally, the average is near the lowest ever at 2.3 percent, the data show.

More than $2.3tn of dollar-denominated debt has already been issued by companies and banks since the year began, including three of the ten largest corporate bond sales on record, Dealogic data show.   Which makes perfect sense…until you factor in that corporations are defaulting on debts at a near crisis level.

The year is half over and we are already at the 60% level of 2009……….

According to a new report from Standard & Poor’s Global Ratings, corporate debt around the world is massively on the rise and could skyrocket to $75 trillion from the $51 trillion it’s at now…. What’s more – S&P estimates that two out of five corporations are highly leveraged (meaning they’ve taken on too much debt). About 43% to 47% of corporations globally are at a financial risk level.

EBITDA = (Earnings Before Interest,Taxes, Depreciation, Amortization)
Far, far above the 2009 recession levels…

But why are corporations the world over, all taking on debt at the same time (we are just finding out now because reports are filtering out from June 2016)?….

Because operating cash flow doesn’t cover it.

 

In Q2, companies generated $425 billion in operating cash flows. Only $151 billion was invested in fixed assets. The lack of investment is the bane of the US economy. And:

 $110 billion went into dividend payments.    

$61 billion was used for takeovers (OK, that’s down from last year)    

$137 billion was blown on financially engineering their earnings via share buybacks.

So operating cash flows were $35 billion short. That happened quarter after quarter. Hence debt ballooned to 32% of total assets at non-financial firms, the highest since 2008, another propitious year.

As you can see in order not to disappoint shareholders, corporate entities are taking on low interest debt simply to keep their profits looking pretty for the short term.  As seen above one could easily avoid debt by

• a) cutting dividend payments,
• b) stop taking over other businesses, or
• c) stop buying back your stock to increase earnings/share…..

No, but none of these superfluous options got cut back, debt was taken on to cover them…

(As an aside, if anyone is wondering what is still wrong with the American economy, the number of whopping total of $61 billion applied to takeovers compared to an anemic $151 billion into capital investment, says it all… )

You must be wondering!  With all this bad news, why is the stock market climbing so precipitously?  Who would put money into a struggling company laden with debt (32% of assets) which cannot meet profit targets without taking on even more debt?  Let me guess. You? You are going to go out and buy some debt laden stock right now, correct?  Of course, you’ll put your whole retirement plan on it, correct?

Well, yes. If you have anyone minding your money, a mutual fund perhaps, I’m sorry, but this has already happened to you.  For in the short term, it has become the only way to get any yield at all.

Today’s precarious stock market scenario only makes sense when compared to negative bond yields… From the comparison chart above, you can see that this is a new phenomenon.  Accounting for the negative bond yields, today, you make 70% more in stocks than you do in bonds…

With a bubble stretched this thin, and with ample covering up so much bad financial news, the danger becomes very real that a tiny pinprick from somewhere, whether coming from student loans, junk bonds, emerging market bonds, corporate bonds, equities, or sub-prime car loan bonds, causes negative losses more than the ability of one to pay……

When disaster finally happens there will be another rush for the exits everywhere, and that is where the fatal flaw in the system will be exposed: there is no liquidity in the markets….

The World Bank estimates the ratio of non-performing loans to total gross loans in 2015 reached 4.3 percent. Before the 2009 global financial crisis, they stood at 4.2 percent.     If anything, the problem is starker now than then: There are more than $3 trillion in stressed loan assets worldwide, compared to the roughly $1 trillion of U.S. subprime loans that triggered the 2009 crisis….

Mr. Businessman calls up his bank… I need a loan right now, quick!   ….. Sorry says the bank. We’re out of money…..

The one solution?  Pretty painful.. Raise interest rates,.  which will result in downward pressure globally on all portfolios, dropping overinflated stock like its hot, but… will dothe necessary job of stopping corporate debt-load from continuing to grow and return us to more accurate reporting. Raising the interest rates act like chemo therapy to the economy, providing long-term healing by actually killing off parts of the living body to keep a malignancy from spreading to healthy tissues… When given the choice, very few of us choose to die forthright, instead resign to taking the chemo.  As we struggle with the decision, at the end of our thought process we all succumb to choosing that option at the end, coming to the realization that either way, we die, and at least therapy provides us the option of more time….

These implications hitting in October are anyone’s guess to their impact on this election year.

Corporate Behemoths

It is just another name.  In today’s reality it speaks of those 5 people who rule the world through their influence. That influence comes strictly tied to shares of ownership…. Those 5 own directly or indirectly enough of the global economy to hold everyone in thrall.

Which when they pull in the direction of our own interests, is ok. When they don’t, we have to modify their power or lose our power..

After the past recession if truth will ever become fact, you will one day learn how we needed them to jump start our post recessional economy. No one had seed money but them. We are now suffering the residuals of that effective policy. Like chemo-therapy, what once was needed for all of us, is now not.

Essentially we continue to let them benefit from the low tax rates then in effect… We used our low tax rates to compensate for other nations use of lowly paid labor in order to help us match their end-costs and stay competitive….

With the global economic implosion the top echelon lost a large percentage and in order to make them willing to throw their leftover good money into saving it, we the people had to make sure they got something back… While profits were low, our plan worked… Now that profits are high, it is working still but to our detriment.

So it is time to change.

Historically that happens with revolutions. France, Colonial America, Ireland, as well as hundreds of documented revolts in ancient Rome line historical accounts of record, where desperate men facing desperate measures had nothing to lose in completely dismantling their society….

And whether that attempt is effective or not, surprisingly…comes down to simply a contest of strength of wills between the two contesting parties. Ultimately that means it depends on your will. Do you yourself have the will for fight for your rights and if necessary risk everything you own to remain a democratic nation?   History implies we don’t; written accounts show us democracy has not been sustainable over the long term. 

Today if every American wanted some type of revolution, there would no way of putting it down. The only way a corrupt government can continue over the wishes of its governed, is to make them prefer the evils they have over what may potentially come upon them if they should ever decide to rise up…..

So as one example the force used against Occupy crowds was there to make others wary of joining in; not so much to wreak havoc on those few demonstrators who were as demonstrators, extremely almost to a fault, well behaved…..

The signal given was “yes, you can have free speech” as long as it is first approved by us…. Those few who picked their battles to demonstrate against Liberals and Socialists do not have cops dressed in intimidation descend upon their displays or bombard their gathering with helicopter backwash… Instead they have tacit approval and are left alone….

Now, none of us alive today felt affinity to those saying… “Rah, rah, rah, Support the Kochs” even though they had corporate America’s and big donor’s support solidly behind them. None of us cared to join. On the contrary in 2011, I think just about everyone felt some affinity towards the Occupy movement in one form or another so the impetus to join their ranks was very high. Many of today’s current politicians and community spokespeople were there at Occupy voting in pure democracy along with everyone else..

As an anti-authoritarian protest Tienanmen Square in China was relatively harmless in what it “did”, but was extremely damaging to the Communist Chinese government for what it “represented”, freedom of expression. Having happy people in a square is not a problem. A problem is that all other Chinese will next do the same and together coalesce and form a counter-government that almost everyone would prefer over the current existing one…

Therefore the brutality at Tienanmen Square was not necessary to clean a square of very harmless happy people… It was necessary to scare all others from doing the same… “Look what happens to you if you challenge your government”…

Now there was a huge risk in undertaking that controversial Chinese governmental policy. It could have flipped Just as easily as having a well cast die turn on its side; in turn it could have created the opposite effect causing a reaction like:… “Oh, no. They are killing us off, All of us need to join and overthrow every Communist Government leader now”… If every village simultaneously lynched, killed, or ran off their communist party, there would be nothing the Communists could do… They are hugely outnumbered.

But the Chinese leader read his population right. The massive numbers of the working class kowtowed and went back into their dutiful trained mode of keeping their head down to keep from having it cut off. On the other hand, the Russian junta two years later got it wrong… Just like the British got it wrong in America prior to 1776. Just like the French got it wrong in Vietnam in 1956. Just like the Russians and Americans both got it wrong in Afghanistan….

When large numbers of people choose to fight… it becomes very hard to regain control… One can only ultimately regain control as is ISIS today, by force and horror, and that force has to be completely overwhelming and destructively horrific enough to wipe out all bad blood, leaving only good available after one takes control… Very messy.

Our forefathers were much closer to violent history. Their ancestors unlike ours were there simply because whenever they attacked, or were attacked, they won and overcame adversity. Whoever lost got rounded up and killed off and their genes were long gone.

The founding fathers scoured history for a way to stop that trend from continuing in this brand new land. Only those of us most astute in historical archives are aware of their knowledge of interstate religious “wars” that took place here, on these shores, primarily between catholics and protestants, or Puritans and the established church… They were “wars” in quotation marks because they really only amounted to raids since so few people were here at the time.. But… they did their damage in spilled blood, but now todays children and most of the general population know nothing of it and think America was always one big happy family.

That big happy family came about solely because of the system established by the founding fathers. A system that was impartial almost to a fault, and left judgments strictly in the hands of society’s members whoever happened to be in power at that moment time…. Each of those people had to constantly receive the affirmation from those governed or lose their position to someone deemed more preferable by a majority of their constituents…..

And it’s worked so far… Just like Democracy in Rome also worked for about 250 years… Today all Americans are 12 years away from that mark in Roman history when at 250 years, Romans gave up their chartered right to rule themselves and instead settled for accepting whomever grabbed the mantel of tyrant or person holding absolute power.

Indeed. Our parallel is not only enumerative, but reflects parallels in our societies as well. We have a media that is controlled. We have the ability to monitor every citizen; to control them by intimidation over “what might happen” based on our knowledge of their peccadilloes. We are treating fellow human beings as things to be exterminated instead of human being fathers, mothers, sons, and daughters, and grandparents who are for the most part, just like us. We are at the point where as serfs we have only two options: accept what our master gives, or starve. There is no opportunity to change or step up. Suck it or else.

Likewise right now we have education slowly closing its ranks to the poor, and giving top income earners a worthy jump in life over those whose lot was to be born in the 99%…. We have corporations poisoning our food, and killing the Monarch butterfly with our representative Congress accepting its private donations and voting willingly to kill both us and many other species, even outlawing counter-studies or discussion to prevent anything bad from surfacing which could cause masses of people to change their minds.. We have energy now monopolized into the hands of very few, and so to live, must accept their price or perish.

Like the Romans we now have continuous war because both parties in Washington now get rich off off it.

So yes. From a historical point, we may very well see democracy disappear in our lifetimes and for most of us if it did, would bode little change. We’d still work, get drunk, entertain ourselves, and go to bed. Romans continued as a dominant society 400 more years after giving up their rights to tyrants. But for others, doing this will mean extermination. It will mean life’s disruption. It will mean a return to slavery… Simply because there is no longer any possible way to override the will of whatever directive each tyrant decrees…

Like every prior civilization, eventually our governmental society will soon become corrupt; since when one is in favor by the rulers one is set for life, the best way to curry favor quickly is to bestow gifts: gifts paid for by you and me. Currently the only thing keeping Democracy in its place now, is the lucky fact that no one is seriously challenging it. But give us one major disruption and someone to effectively blame it on democracy’s inadequacies.. and that tyrant suddenly looks very appealing. That so far is what we have not had, but odds say we will face soon if we do not decide once and for all right now, who we really want controlling our lives: representatives of ourselves or a monarch….

The prime question we currently face right now is how to cut the string running from the handlers to the puppets… The handlers have no real effective power. Do you even know who the top 5 hedge fund holders are? But having Carper cast a certain vote. Have Coons cast a certain vote. Have Carney vote a certain way and with 60 votes in the Senate and 218 in the House, certain policies do quietly get set…. Policies that hurt 99% of Americans, always still squeak by with only a few votes which is all they need.

The reason we are at this point is because when that argument was made, that people with money should have more clout in government over ordinary people who don’t have money… it won. And it stood up in court… Citizens United opened the door for money to takeover our government and leave 99% of our people in its dust. The original idea behind Democracy was that every eligible man had one vote. The new forthcoming idea is that if you have a hundred million dollars, you should have 100 million more times of voting influence over someone worth one dollar….

In effect, the worth of any person through this decision now became more important than the individuality of that same person…

We come from pioneer stock. It wasn’t always that way. Our ancestors knew that worth was based on luck but survivability was based on effort and that every person had an equal share in making Democracy work, and every person should therefore have an equal representation….

What Citizen’s United did was turn this original idea on its head. The idea that money spent was a form of free speech immediately gave power to those with all the money… They now had all the free speech… It was a bad idea and one that disenfranchised 315 million Americans from their own government.

Now. Even if a politician-elect is a great people’s candidate, one who was very humanly oriented in their original candidacy, after one term they too are forced into this reality of kowtowing to those who can break them. This explains the fall of Chris Coons and John Carney. As soon as the reality hits of being in Washington, it becomes explained very quickly to them by their brethren that to stay in power one must acquiesce to power. There are great forces against which if you don’t comply, can flood your constituency with a lot of trouble against which anyone would prefer not to deal.

If you are in a solid party-controlled seat, they make someone with resources primary you. If you are in a close two-party election seat, someone with resources will challenge you.. the money will be forthcoming to them… Amazing amounts of money you can only dream of seeing… (O’Donnell- Coons)…

If you were in power… why on earth would you even listen to a single person like me? Seriously. I can do nothing more than give you one vote. But Acme Corporation, rich off of Wily Coyote’s sales, can buy challengers against you for pennies on the dollar. If you vote no, when its PAC says yes… you have to question which really is the best for your citizens long-termed interests? For if you vote no as you wish, and lose the next election round, someone much worse will be thrust in your place making all those same decisions. It becomes apparent rather quickly that if you wish to keep your values for which you were elected, you need to do the dance of listening to constituents and obfuscating from them all your votes for the power brokers as best you possibly can. Ironically under Citizen’s United, this becomes indeed the preferable course of action… The last thing we need is someone replacing Carney with Copeland in the next election… Then the little people have lost all clout…

So what needs to happen is that all the ground rules quickly change in campaign finance so the power becomes more balanced between those with money and those with numbers who have little money. And that is easily done. We already did it with McCain-Feingold. That is until it was deemed unconstitutional following the Citizens United decision. The court said any containment of influence by wealthy individuals or PAC’s was a violation of free speech… What happened next was that the new influence of unlimited money, in turn violated our rights to free speech by isolating us from all ongoing dialogue, since their ad-buys block my voice out…. I now lack the free speech once afforded me because of the effects of Citizen’s United… Which means if I can no longer speak out for any of your interests, then you too have lost your right to free speech ultimately because you do not have over $100 million dollars to spend simply to get access to listeners.

Unless Citizens United is quickly overturned, our government becomes a shill for those 5 people by default.  What it has done is create an environment very ripe for all the tools we used originally to create a police society protecting us from “terrorism”, to now be used upon ourselves to shift into a new society, one complacent to the loss of our right to determine our own future…..

That scenario is NOT democracy in action….