Less than Zero

Posted on February 12, 2016 by MN Gordon

Just when we thought we’d seen it all the impossible happened.  Earlier this week the 10-year Japanese government bond slipped into negative.  Obviously, it took decades of heavy handed intervention into credit markets to pull off such a feat.

On Tuesday, when the Nikkei dropped over 5 percent, the yield on Japan’s 10-year government bond dropped to minus 0.005 percent.  This marked the first time in the history of government debt that the yield on a G7 country’s 10-year bond has been less than zero.  We are lucky to be alive to bear witness to the absurdity.

Just a few years ago these depressed credit prices would’ve been considered impossible.  Why would anyone with advanced knowledge of a negative outcome loan their money at a loss?  But sure enough, in the bright light of day, the impossible has become reality.

Make of it what you will.  The ultimate impact of a 10-year government bond with a negative yield is unknown…though something seems amiss.  Will this allow the government to issue, and also buy up, unlimited amounts of its own debt? Continue reading →

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China’s $6.6 Trillion Toxic Loan Problem

Posted on February 5, 2016 by MN Gordon

“As long as you’re green, you’re growing.  As soon as you’re ripe, you start to rot,” once remarked Ray Kroc, mastermind of the McDonald’s franchise empire.

At the moment, no truer words can be spoken for China’s ripe economy.  The Middle Kingdom’s 30-year economic boom is being overcome with the unpleasant odor that befalls rotting vegetables.  What’s more, there’s no way to reverse it.

The state of economic activity in China is stalling out.  All of the sudden, the mistakes that were hidden by a growing economy are surfacing en masse.  Excess capacity is turning up in all corners of the economy and no one knows what to do about it.

Each day, it seems, new rot comes to bear upon Beijing’s central planners.  Somehow the miracle workers have lost their hot hand.  A slowing economy, falling stock market, exodus of wealth, and weakening currency are not conforming to the graphs and statistics reported in the latest blueprint for the planned economy.

How could it be that the professional politicians, who’d sparkled with genius all these years, so grossly missed their targets? Continue reading →

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Something’s Gone Horribly Awry

Posted on January 29, 2016 by MN Gordon

The S&P 500 has fallen 7.37 percent so far this year.  What to make of it…

Naturally, some people find falling stock prices to be unpleasant.  Others find them distressing.  Another way to look at falling stock prices, however, is like a high-fiber diet.  The effect is necessary to a healthy functioning system.

The simple fact is that stock prices, fueled by speculative liquidity, have long since outrun the real economy.  The disconnect between the two has been widely observable.  The economy’s lagged, incomes have stagnated, yet stocks have soared.

Thus the present, ever so slight reduction in liquidity, and the subsequent lowering of stock prices, is having a cleansing influence.  For it will serve to eliminate marginal businesses, and trim the fat from larger businesses.

Consequently, business owners, managers, and workers of marginal undertakings will have to redirect their efforts into something new…something that’s of greater value.  For example, Walmart recently announced it would be closing 269 stores and laying off 16,000 workers. Continue reading →

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Chasing the Wild Goose in Davos

Posted on January 22, 2016 by MN Gordon

Despite the reformers endless efforts to encircle mankind, some persist beyond the broad extent of their casted net.  In the backwaters of the new Republic, for instance, the distant rumble and flicker of Saturday night hootenannies still befall yonder the mighty oak groves.

In defiance of all things good and proper, the unconsecrated gather under the pale moonlight and jig step to zydeco washboard rhythms while downing tipples of corn syrup and fermented grain.  These knees-ups certify that, even in this era of big government, there remain places in the lower forty-eight where freedom reigns.

Similarly, the backwoods of the old world, rare as they may be, have not been entirely defamed.  Though old world songs are more rigid – and drinks more dry – there are still places where people come together with gusto, and without interference, to dance the polka around the maypole.

Across the planet, no doubt, there are still pockets of liberty where individuals can lawfully expel into toilet bowls that use more than 1.28 gallons per flush.  These places are uniquely exceptional with their own distinct rhyme. Continue reading →

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