Laurence Kotlikoff for President

Posted on August 5, 2016 by MN Gordon

According to the Department of Commerce, U.S. gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016.  This, unfortunately, isn’t indicative of the sort of robust economic activity that will grow the economy out of debt.  In fact, as growth is stagnating, deficits are increasing.

The U.S. fiscal year 2015 budget deficit was about $439 billion.  For fiscal year 2016, the federal government is projected to run a deficit of $616 billion.  The upsurge, of roughly $177 billion, amounts to about a 40 percent deficit increase from 2015 to 2016.

Presently, the federal debt is well over 100 percent of GDP.  Obviously, 1.2 percent GDP growth is wholly inadequate to shrink the debt.  To the contrary, 1.2 percent GDP growth in the face of a projected $616 billion deficit will further increase the debt as a percent of GDP.

As far as we can tell, neither Hillary Clinton nor Donald Trump is talking about the U.S. debt problem.  What’s more, they’re economic platforms both include massive spending programs. Continue reading →

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Visions of Tomorrow from the Permanently High Plateau

Posted on July 29, 2016 by MN Gordon

Somewhere, someone first said “bull markets don’t die of old age.”  We suppose this throwaway phrase was first uttered in a time and place much like today.  That is, in the midst of a protracted bull market where stock prices had detached from the assets and earnings of companies their shares represent claim to.

Presumably, it was used as rationale for why stock prices should go higher.  Quite frankly, we don’t know why anyone would ever say such baloney.  But it likely makes the person who emits it feel content about their place in the world and the shallow intelligence of their wit and wisdom.

No doubt, the current old age bull market has gone mad as a hatter.  Who in their right mind would invest their hard earned savings into a business for the opportunity to receive $1 of current earnings for every $26 invested?  Aside from Swiss or Japanese bonds, or lottery tickets, we can’t think of an investment with shoddier long-term prospects.  Can you? Continue reading →

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More Signs the End is Nigh

Posted on July 22, 2016 by MN Gordon

“What has been will be again, what has been done will be done again; there is nothing new under the sun,” explained Solomon in Ecclesiastes, nearly 3,000 years ago.

Perhaps the advent of negative yielding debt would have been cause for Solomon to reconsider his axiom.  We can only speculate on what his motive would be.  As far as our studies have shown, negative interest rates are a brave new phenomenon.

Still, we’ll concede the present day ain’t all that unique or special.  We continue to look to the night sky with wonder.  When the moon is full we let out a howl with the innate impulse of early man.  So, too, we still put on our pantaloons one leg at a time.

The context, however, and the fantasies, have their differences.  Here we defer to Fred Sheehan, and a brief passage from his December 2006 historical essay, War of the Nerds, for edification from the not too distant past:

“Every generation suffers its particular fantasies.  So it was a century ago.  Investors had grown so immune to the consequences of war that bond markets from London to Vienna didn’t flinch after the assassination that provoked World War I. Continue reading →

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Destination Mars

Posted on July 15, 2016 by MN Gordon

One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks.  If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical.  But, in certain economies, this is now standard operating procedure.

For example, in Japan this explicit intervention into the stock market is being performed with the composed tedium of a dairy farmer milking his cows.  The activity is more art than science.  Similarly, if you stop – even for a day – pain swells in certain sensitive areas.

In late April, a Bloomberg study found that the Bank of Japan (BOJ), through its purchases of ETFs, had become a top 10 shareholder in about 90 percent of companies that comprise the Nikkei 225.  At the time, based on “estimates gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan,” Bloomberg assumed the BOJ was buying about 3 trillion yen ($27.2 billion) of ETFs every year.  The rate of buying has likely accelerated since then. Continue reading →

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