What Were They Thinking?

One benefit of hindsight is that it imparts a cheap superiority over the past blunders of others.  We certainly make more mistakes than we’d care to admit.  Why not look down our nose and acquire some lessons learned from the mistakes of others?

A simple record of the collective delusions from the past can be quickly garnered from a price chart over time.  Market peaks appear so obvious, after the fact.  Perhaps with a little examination we can prevent some of our hard earned capital from being returned to dust.

Take bitcoin, for instance.  What were those morons thinking who bought bitcoin at over $17,000 in late-2017?  Why couldn’t they tell that a severe price collapse was imminent?  Now, over 16 months later, their bitcoins are about $5,230 – or roughly 69 percent less than what they paid for them.

What’s more, if bitcoin doesn’t hit $1 million by the end of 2020, John McAfee – the cybersecurity guy – will have to eat his most private part on national television.  Apparently, McAfee consulted his proprietary pricing model before making this outrageous claim.  Maybe he should have back tested it a bit more before going public with his findings. Continue reading

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Unsolicited Advice to Fed Chair Powell

American businesses over the past decade have taken a most unsettling turn.  According to research from the Securities Industry and Financial Markets Association, as of November 2018, nonfinancial corporate debt has grown to more than $9.1 trillion.

What is the significance of $9.1 trillion?  And what are its looming repercussions?  Here, for your edification, we’ll take a moment to properly characterize this number.

For one, nonfinancial corporate debt of $9.1 trillion is nearly half of real U.S. gross domestic product.  Hence, the realization of profits by private businesses has required a substantial accumulation of debt.  And this debt, like much of today’s outstanding debt, is shaping up to be reckoned at the worst possible time.

Remember, corporate debt, where the debt is increasing faster than profits, is like a plucked tomato sitting on a store shelf.  It goes bad with little notice.  Frank Holmes, by way of Forbes, offers the grim particulars: Continue reading

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As the Madness Turns

The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.

GDP for the quarter, as estimated by the March 29 update to the New York Fed’s GDP Nowcast, grew at an annualized rate of 1.3 percent.  For perspective, annualized GDP growth of 1.3 percent is akin to getting a 1.3 percent annual raise.  Ask any working stiff, and they’ll tell you…a 1.3 percent raise is effectively nothing.

By comparison, the U.S. budget deficit for fiscal year 2019 is estimated to hit roughly $1.1 trillion.  This amounts to an approximate 5 percent increase of the current $22.2 trillion national debt.  In other words, government debt is increasing about 3.85 times faster than nominal GDP, which is about $21 trillion.

These two metrics offer a rough perspective on the state of the economy.  Deficit spending is grossly outpacing economic growth.  Heavy treatments of fiscal stimulus are being applied.  Yet the economy’s practically running in place.  In short, the state of the economy is not well. Continue reading

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How to Escape Like Willie Boy

The America we thought we knew – the country we learned about in grade school – vanished long ago.  In truth, it was gone well before we stepped foot in our first classroom.  But America’s myths and legends remain.

The myth that America makes the world safe for democracy.  The legend that the role of free press in America is to hold government accountable.  The myth that the U.S. Constitution is the supreme law of the land.  The legend that the Fed maintains stable prices.  And on and on…

Preserving America’s myths and legends has become risky business in the 21st century.  Risky in the sense that it propels America towards a great geopolitical conflict.  So, too, it puts hardworking Americans – and an army of shirkers – in the crosshairs of an epic financial crackup.

How to save and invest for a tomorrow that’s far different from today is an extraordinary challenge.  We can’t say for certain.  But we venture a guess that buying and holding an S&P 500 index fund over the next 30 years won’t cut it. Continue reading

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