Projection

So, as we face the likelihood of a Biden Presidency, the saving grace for me is that the Republicans maintained control of the Senate and picked up seats in the House.  That's good news, because it means on some level, the identity politics and socialist aspirations of the group which has coopted the message of the Democratic party has not gained as much traction as I feared.  There were definitely a lot of people who simply voted to get Trump out, but also recognize the glaring weaknesses of the extreme left agenda.

I bring that up, because too much of what you see in the media represents the worst of what the Democrats have to offer.  It is accusations of racism all around, framing all issues in the context of identity politics, and generally misleading their audience on what matters and why.

Let's take a few examples.

We had the Black Lives Matter movement and the subsequent systemic racism/defund the police outcry.  If you listened to CNN, or read the NYT or Washington Post, you would think that all minorities had subscribed to the views espoused under those banners.  And then the election comes, and Trump does better with minorities than any Republican since 1960.  How to reconcile?

Maybe, just maybe, it turns out that the folks who bear the burden of these trends are the minorities who live in the communities where policing and the presence of law enforcement is most important.  Maybe, just maybe, legal immigrants in Florida and Texas agree that people should enter this country legally.  Maybe, just maybe, demographics is not destiny, and the best ideas still win.  Maybe, just maybe, what Trump was talking about is not just racism, racism, racism.  Maybe, just maybe, the folks who come from socialist countries know just how shitty that reality really is, and the messaging of AOC, Warren and Harris really only appeals to woke white people who have no idea what these "wonderful", egalitarian ideas evolve into.

After the election, I saw a number of articles in "serious" newspapers that simply doubled down on the racism explanation.  Disregard all of the above and continue to let dumb ideas guide you, because the Republicans are going to get even more seats in 2022,  And, my guess, they will get the White House back in 2024.

What the lunatic left is really doing is projecting their own worst tendencies onto the political opposition.  Guess what, looks like Trump lost, and no one rioted.  We know who the retailers in NY and LA and DC were actually afraid of.  The left accuses people of intolerance because they themselves are intolerant.  I don't pretend to speak for everyone who shares my political views, but I am comfortable in accepting that other views exist.  What we have learned is that the people who don't agree with me don't really have that ability.  They have to explain and rationalize the opposition in the most deviant and evil ways possible.  It failed this time, and it will continue to fail in the future.

"The Russians are coming! The Russians are coming!"

While I don’t watch the news or read the newspaper, I am keenly aware that Putin Derangement Syndrome has gone next level lately, particularly among the Democrats in Washington.  While I believe that an opposition is an important feature of our system, I think the distinction needs to be made between offering an alternative versus simply trying to re-write history and re-litigate the election.  Needless to say, I don’t think the angle currently being pursued is going to dethrone Mr. Trump in 2020.  And, as always, the folks at Geopolitical Futures offer a healthy and reasoned perspective on what the story really is with respect to Russia:

“The media and Trump’s opposition present this openness toward dialogue and Trump’s own personal admiration for Russian President Vladimir Putin as evidence of his collusion with Russia.  But the only difference between Trump’s approach to Russia and that of his predecessors has been style, not substance. A year after Russia undermined confidence in U.S. security guarantees in the 2008 Georgian war, U.S. President Barack Obama’s administration tried to “reset” Russian relations. It failed miserably. President George W. Bush said in 2001 that he had met Putin, looked him in the eye, gotten “a sense of his soul,” and found him to be straightforward and trustworthy. Bush got it wrong too.

U.S. presidents always try to improve the relationship with Russia, and they always fail. In this sense, Trump is typical. Part of the reason successive U.S. presidents keep making this mistake is that presidents, like the electorate, tend to personalize everything. Trump wants to get along with Russia; Obama wanted a fresh start; Bush felt he knew Putin’s soul. They view Russia as something that can be handled by sheer force of personality. But the individuals and their personal preferences don’t matter, which is something Russia understands better than the United States does. Relationships between countries aren’t like relationships between people. Countries can’t be trusted to act any way except in their own self-interest.

U.S. presidents have been unable to improve U.S.-Russia relations because the two countries have opposing interests… [Russia] is a highly vulnerable country. To protect its core – around Moscow – from potential enemies, it must expand outward into Central Asia, the Caucasus and Eastern Europe to develop buffer zones. (The U.S. is fortunate to have the Atlantic and Pacific oceans protecting it.) Russia will always push to have control over these areas, no matter who is serving as its president. If a liberal democratic revolution were to usher an opposition figure like Alexei Navalny into power tomorrow, or if Trump were impeached next week, the U.S. and Russia would still be at odds in the exact same parts of the world…

Despite the allegations of collusion against members of the Trump administration, the U.S. has not softened its policy toward Russia in Eastern Europe. Much has been made of Trump’s tough line on NATO, but the U.S. continues to solidify bilateral relations with countries like Poland, Romania and the Baltic states, all of which are crucial to establishing reliable defenses against potential Russian aggression. A U.S. armored brigade deployed to Poland as scheduled right before Trump’s inauguration and has not been withdrawn. Trump met with Romania’s president on June 9, and he plans to visit Poland in early July. Secretary of Defense James Mattis was in Lithuania last month. And Ukrainian media have reported that President Petro Poroshenko will visit Washington on June 19-20. Contrary to the media narrative, Russia’s position in Eastern Europe is weakening.”

Paris Agreement

Far be it for me to act like any kind of expert on climate change, but I do get amusement out of the outrage at Trump’s “incomprehensible” decision to withdraw from the Paris Agreement – mostly because the accords themselves were largely symbolic and without any real teeth to enforce the proposed mandates.

The United States is already a country that has reduced its carbon footprint because it stands at the forefront of technological innovation – the problem really lies with China and India, countries that are looking to emulate the United States but with far larger populations, and who will no doubt allow their economic imperatives to trump any stipulations that the Paris Agreement may announce.  To that line of reason, I think Stratfor summed it up well: “Geopolitical forces, rather than international deals, have shaped the United States’ incorporation of cutting-edge technologies since long before Trump was elected, and they will continue to do so long after his tenure ends.”  Thus, I don’t think there is real risk to the United States’ withdrawal, and it does not mean that the conversation about climate change and how to address it will end.  Nevertheless, I don’t think the current environment is conducive to that kind of nuance and reason, so instead we will just get vitriol and hot air about what to make of the situation.

And then there's the rub...

Courtesy of Mr. Skin in Ask Fleck:

“Those geniuses can't understand why GDP "growth" has been so anemic. Too much debt for the spending class, not enough income for the "savings" class, and not enough outright welfare for all society's deadbeats. This situation is unlikely to improve.”

Political Risk v. Market Risk

Always interesting stuff from Ben Hunt (although Bill Fleckenstein probably gets indigestion from the basic conclusion):

“Unfortunately and unsurprisingly, the new political leaders who emerge from a collapse of the Tower of Babel are rarely the champions of the Forgotten Man that you might think would emerge. Both in the 1930s and today, there’s no shortage of non-status quo political entrepreneurs who speak the language of the politically stuck and are willing to put themselves out into the political arena. But to be successful in their political entrepreneurship it’s almost essential that these new candidates be card-carrying members of the 1/10th of 1% Rich Club. Why? Because it requires an insane amount of money and sheer notoriety to replace the machinery of a status quo political party in a mass society. A political party is a media company. By joining a status quo party and toeing that party line, you communicate an enormous set of signals to potential voters for free. But by toeing that party line, you lose your Forgotten Man authenticity and any hope of being the champion of Something Else. Want to be a “change candidate”? Better make a couple of billion dollars first, or have plenty of billionaire friends, so you can afford to bypass the status quo political party.”

and

“Yes, there’s enormous political risk associated with the collapse of status quo political institutions and the rise of the Trumps and the Macrons of the world. But…

1) for financial markets, these new leaders are familiar, encouraging faces. They’re members of the 1/10th of 1% Rich Club, because they had to be to sidestep status quo political parties. Moreover,

2) there’s going to be a hope and a promise of fiscal policy initiatives, and that’s a tailwind for markets, too. And finally,

3) don’t worry, Mr. Market, when that hope and promise of pro-growth policy fades into the realization of anti-growth gridlock, our old friends Janet and Mario will be there to pick up the slack with more liquidity.

That’s my macro story for the divorce of political risk from market risk, and I’m sticking to it. Where does it break down? Not with a funky German or Italian election, but with Janet and Mario declaring victory and taking away the punchbowl. That’s what will bring political risk back to markets.”

The Dollar

Another great interview on Real Vision with Luke Gromen.  He covered a lot, but I thought his summary below of Bretton Woods and how other countries are turning their backs on it, and the implications, is very useful.  Not for nothing, but part of the reason to prefer a Trump over Clinton was because of the belief that Clinton was prone to follow path one:

“…look, the deal was-- to be flip, the deal was, you take our jobs. You take our factories. You take our dollars. And then you lend us back the dollars, and we'll buy the stuff from you. And in third quarter '14, with the rollover in FX reserves, the world's saying, we're not taking the dollars anymore. And so I think what's ultimately happening is there's two paths for the US to go with that. Path one is, we'll invade your country and make you take the dollars. And path two is, fine. Deal's off. We'll bring the factories back. We'll bring the jobs back. If you don't want the dollars, you don't get to keep the factories. It's your choice.”

Hangover

One of the interesting data points that I came across post-election is that over the past 100 or so years, following any two-term President, there has always been an economic contraction within the first twelve months afterwards.  In that vein, I saw a really compelling interview with Lacy Hunt on Real Vision that provided the following nuggets:

As it relates to debt:
     -From 1952-1999, it took $1.70 of debt to produce $1 of GDP
     -From 2000-2015, it took $3.30 of debt to produce $1 of GDP
     -In 2016, it took $5.00 of debt to produce a $1 of GDP

That, my friends, is what non-productive investment and debt looks like.  But, there's more...

-The United States is demographically challenged.  The population is the oldest that it has been at any time in the history of the republic.

-As a post-script on those debt and GDP correlations, the last 10 years has only seen an average of 1% per capita income growth, far below historical trends.

-The post-GFC recovery has been the weakest expansion since WW2, and one of the weakest since 1790.

-The industrial capacity use rate has been trending down, which speaks to significant excess capacity.  That represents one of the strongest rebuttals to the idea that the proposed corporate cash repatriation plan will have meaningful impacts on growth.

-Of the $69Tn in outstanding debt in this country, some $20Tn is due in the next two years.  As rates are now 100bps higher than a year ago, that represents some $200Bn in additional debt service payments if all of those liabilities are simply re-financed.  In an economy where GDP only grew by $530Bn last year, more and more capital therefore has to go towards financial/non-productive overhead.

Anyway, all of it is just a roundabout way of saying that things look bleak for the economy prospectively.  And why, despite my disgust with Putin Derangement Syndrome and liberal hypocrisy, I am not a big believer in the Trump rally and related economic confidence.  Even if he does the right things, the bill is still coming due.

The Revolt Against the Masses

The subtitle is How Liberalism Has Undermined the Middle Class and the author is Fred Siegel (2013).

There are times when I read books to challenge my beliefs. This time is not one of them. Given the current political environment, and my sense that liberal outrage is an exercise in hypocrisy, I sought out a well-regarded argument that might confirm my understanding. Such is this book, as it takes us back in time to the roots of today’s liberal progressive agenda, and elucidates how it has always sought to impose the will of the elite on the perceived philistines and hoi polloi.

The progenitors are people like H.G. Wells, H.L. Mencken, Sinclair Lewis, Randolph Bourne, and Herbert Croly. Let’s start out by noting that all were believers in eugenics, which wasn’t deemed a bad thing until it became integral to Nazism. Moreover, all were big believers in the disinterested technocrat guiding the morally unsophisticated and unintelligent masses. They also all admired the Bolsheviks and frowned upon the economic motive. To wit: “We were all sworn foes of capitalism, not because we knew it would not work, but because we judged it, even in success, to be lethal to the human spirit.” This strand of ideology was very much at the heart of the New Deal and influenced its creation, as it drew on the same circle of professionals and professors who thought so much of Moscow. As such, it was a manifestation of the perceived solution to class conflict, more than just an answer to the Great Depression – not surprisingly, it was the genesis of so many social welfare programs that still exist today.

As a general observation, liberalism was an expression of “European Socialist parties rewritten in the language of rights”. Whether the New Deal programs earlier on, or the legal changes that came out of the ‘60s, it was an attempt to have the central power administer how humans should interact. Don’t get me wrong, as I have no objection to civil rights and personal liberties, but when all too often such decisions come out of the Supreme Court rather than majoritarian-ism, there is a disconnect between what the Democratic process is supposed to be and how morals and ideals are actually being implemented.

So, if I were to take anything away from this book, it is that good intentions matter more than outcomes in looking at the progression of this movement. Proving the point that not every problem can have a solution.

As an interesting tangent, the response to the 1980 presidential election might be useful. Over the course of that campaign, Democrats sought to turn the Republicans into populists, as Reagan was the outsider candidate trying to bring morning back to America after the turbulent 1970s of stagflation and high unemployment. While claiming the moral high ground, unfortunately for liberals their policy regime had left a country that was teetering – and in winning, Reagan engendered unexpected support from white working class Democrats (sound familiar?). The response from the losing side was vitriol (sigh) and nothing that resembled a re-think on ideas. The social programs were failures, as poverty continued to rise, but were now re-imagined as rights and racial justice (did they march the day after the inauguration also?). I would remind everyone that this book was written years before the Trump phenomena. And maybe what we are seeing yet again from the resistance – actually what I believe is going on in earnest – is the easy pivot that liberals make between acceptance and rejection depending upon who is in power.

Immigration

I don’t think that the immigration ban is about racism at its core. And, to that end, as usual, George Friedman offers up useful insights:

“The issue is not whether Trump and his followers are generally anti-immigrant. The question is why they are so hostile toward Muslims, who roughly total the same number as the Chinese and Indians, and to Mexicans, who vastly outnumber these groups. I wish the explanation were more complex, but it is actually quite simple in both cases.

The United States has been at war with Muslim groups since Sept. 11, 2001. When the U.S. has gone to war with foreign powers, there has been a surge of hostility toward immigrants from that foreign power’s country. During World War I, German immigrants in the United States who still spoke German came under suspicion and were pressured to adopt English. During World War II, Germans who had maintained close and cordial ties to Germany prior to the war were harassed, and in some cases, arrested under suspicion of espionage and subversion. Japanese citizens of the United States were arrested and sent to detention camps out of fear that they might be conducting espionage or sabotage for the Japanese. During the Cold War, post-war émigrés from Soviet satellite nations were distrusted by the FBI, which feared they were sent by the Soviets as spies and saboteurs.

When there is war, there is suspicion of the enemy. When there is suspicion of the enemy, there is fear that émigrés might be in the United States on false pretenses. Historically, émigrés have been caught in the middle to some extent because their loyalty is questioned. In war, there is rage as the casualties mount, particularly if sabotage and terrorism are carried out in the homeland. This is hardly new or difficult to understand. If those of us old enough to recall the terror after 9/11 will do so, we can remember the fear and uncertainty not only about what comes next, but also whether the next terror team already was present in the United States. After 15 years of war and many Americans dead, this has congealed into a framework of distrust that may well go beyond the rational. The detention of the entire Japanese community was not rational. Nor was it something that cannot be understood. It is hard to calibrate what you ought to be afraid of in war, but you know that something dreadful might happen. Are all Muslims warriors against the United States? No. Do you know who is or isn’t? Also no. Wars, therefore, create fears. There is nothing new in the American fear of Muslims in the context of war.

The Mexican situation is different. There was a war, but it was long ago, and fear of war is not the driving issue. Rather, the driving issue is illegal Mexican immigration. There is a great deal of homage paid to the rule of law. Congress passed a law specifying the mechanics of legal migration. Some 5 million Mexicans broke the law. Whether this has harmed the U.S. economy or not, the indifference to enforcing the law by people who are normally most insistent on the rule of law has created a sense of hypocrisy. At the same time that the middle and lower-middle classes feel as though their interests are being ignored, the presentation of illegal aliens as “undocumented immigrants” reveals a linguistic maneuver. The “illegals” are transformed into the merely “undocumented,” implying a minor bureaucratic foul-up.

The anger is not only directed at the Mexicans. It is part of the rage against those living in the bubble, who present themselves as humanitarians, but who will encounter the illegal aliens, if at all, as their servants. And rightly or wrongly, some suspect that open support for breaking the law is designed to bring cheap labor to support the lifestyles of the wealthy at the expense of the declining middle class. The fact that the well-to-do tend to be defenders of illegal aliens while also demanding the rule of law increases suspicions.

There is a somewhat deeper layer. As long as illegal immigration is permitted, the foundations of American culture are at risk. It is not simply immigration, but the illegality that is frightening, because it not only can’t be controlled, but also the law is under attack by those who claim to uphold it. The fear that a person’s livelihood is being undermined and his cultural foundation is being overwhelmed creates deep fear of the intentions of the more powerful. The issue appears to have little to do with NAFTA and other economic concerns. The U.S. and China have equally intense economic issues, but there is minimal tension over Chinese immigration. The economic and immigration issues seem only tenuously connected.

It is rare that an issue of such emotional impact as Muslims during a war with Muslims, or immigration in violation of the law, would not cause tension. As we saw with President Franklin D. Roosevelt and the Japanese, things that are obvious to those living decades later are not obvious at the time. Indeed, it is a failure of imagination to be unable to empathize with the fear felt after Pearl Harbor. In our time, the failure to empathize comes from those who feel immune to illegal immigration or the 15-year war. It is part of the growing fragmentation of American society that different classes and regions should experience these things so differently, and that each side has so little understanding of the other.”

Counter Factuals

I am reading another book right now by economist Richard Koo, innovator of the balance sheet recession concept.  If you remember what his idea entails, it's that when you have a big bust in asset prices when folks are highly levered, causing technical insolvency as values tumble, the introduction of monetary stimulus is of limited usefulness.  Ultimately, you need fiscal policy from the government to help mend the economy.  He notes that the big examples of a balance sheet recession include the Great Depression, Japan's bust in the late 1980's, and most of the large western economies post-2008.  What Koo emphasizes is that fiscal stimulus, in those cases, was the ultimate antidote.  But, look a little deeper, and there is probably cause for concern even beyond the misallocations that are allowed to linger.  In the case of Japan for the past 25 years, and the U.S. since 2008, the fiscal stimulus implemented prevented a Great Depression type event, but still did no better than only tepid growth.  Now, looking at the Great Depression, Koo would argue that there were initially mistakes under Hoover that exacerbated the initial bust, and later under FDR when he tried to cut budget deficits and triggered the double-dip in 1937.  So, what was it, by Koo's account (and others, like Paul Krugman who calls for a space invasion), that did the trick?  Massive, massive stimulus -- and the only thing that ever gets you there is war.

More on the Sideshow

My instinct is not to focus on politics too much in this space, but obviously it has played a large role lately in how to think about investing. With that in mind, I think Bill Fleckenstein did a good job of capturing my own personal view on politics in his recent Real Vision interview:

“The people that are the so-called conservatives think the economic engine is the most important thing, and then you can do good works with what comes out of it. The liberals tend to say, no, we want to do good works and the hell with the economic engine. Well, if you break the engine, you can’t do much.”

I think that view is spot-on, and explains why I believe that the women’s march and other efforts to focus energies on idealized notions of the nation state is to miss the point. If everyone is better off economically, the chances are slimmer and slimmer that the worst predilections and insecurities of man will win out. I’m not claiming absolute certainty on this point, but I am pretty sure that the worst moments in human history did not occur when people were doing well – in other words, that’s not when we are most vulnerable as a civilization. And that’s why economic populism was the strategy to win this time around.

Having said that, even if Trump is more economically literate that those who came before him, he can still masterfully screw it up by choosing to implement policies that are just so against the grain morally, as to undermine his ability and support to do the other more important things that need to be done. The immigration ban is a case in point. Yes, he said he would do something to this effect, but its implementation was crude, potentially unconstitutional, and anathema even to those who might otherwise be apt to give him the benefit of the doubt. I hope he finds a graceful way to backtrack on it, even as I find the liberal outrage to reek of hypocrisy.

Doubling Down

In what has been termed a “tumultuous” opening to his Presidency by the media, I thought I could offer some of my own thoughts on the era of Trump so far. He came to Washington as an outsider who planned to set fire to the place. And in making an aggressive inauguration address, and the other opening acts of defiance, he has stuck to that promise. What I find particularly interesting is that the “opposition” seemingly has learned nothing from its defeat in November. To quote someone I know, they are doubling down on a bad strategy – whereas economic populism is what got Trump to power, the folks who could be the resistance are instead focused on identity politics. And, really, they should know better already.

During the campaign, where Trump went wholeheartedly after white working class voters by focusing on their economic pain, the Clinton side decided that the right response was to label Trump as a racist and misogynist, and better yet to categorize his supporters as deplorables. He still won. In the aftermath, between attempts at trying to overturn and invalidate his win, the strategy still seems to be a focus on some unsubstantiated claims about Russia hacking the election (again, a carryover) and continuing to dwell on identity politics (witness this past weekend’s march). None of that will change the score in terms of who supports him and who doesn’t.

The basic point is that it didn’t work during the election and it won’t work now. Unless the resistance can speak to the specific issues that helped Trump to win, they will make no progress over the next four years in arguing the case to vote him out.

Look, we can all agree that he is a jerk. But he is a smart jerk who understands what the pressure points are for a large swath of voters. Sadly, the folks who marched over the weekend are missing exactly that.

NATO

Courtesy of Geopolitical Futures:

"Nations have the right and obligation to carry out their foreign and military policies as they wish. But an alliance constrains nations to behave in a certain way given certain events. An alliance is a pooling of sovereignty. It is absolutely true that NATO wasn’t conceived to fight wars outside of Europe. Nor was it conceived as an organization where the primary military burden falls on the Europeans. But Europeans must face two facts. First, this is 2017, and the wars that matter to the U.S. are being fought in the Islamic world. Second, this is not 1955, and Europe is not struggling to recover from World War II. It is a wealthy region, and its military capabilities should be equal to those of the U.S...

Trump’s approach to NATO has been forced on the U.S. by the Europeans and would be on the table with a different president. NATO doesn’t function as an alliance. It is a group of sovereign nations that will respond to American requests as they see fit. The U.S. understands this, and inevitably, the veil of good manners was going to be torn away. Someone was going to point out that NATO is obsolete. Trump happened to enjoy saying it.

But whether it is a tragedy or comedy, the matter can be summed up the following way. The Europeans are wondering if the U.S. will leave NATO. The U.S. is wondering if the Europeans will join NATO. Forgetting NATO, the question is this. What is the commitment of European countries to the United States, and what is the American commitment to Europe? It is not clear that there is a geopolitical basis for this commitment any longer. Interests have diverged, NATO is not suited to the realities of today, and the U.S.’ relations with European states differ from nation to nation, as do European nations’ relations to the United States."

End of Year Note

I am optimistic about 2017. Not because of who got elected president, or because I think that the economy is about to heat up. Rather, it is about business prospects that I have been mining for several years which I think will finally evolve and mature to my satisfaction. Having lacked such optimism for a while, it’s a nice change.

Apropos of that sentiment, the notion that interest rates should rise will facilitate the ideas that I want to take action on. And, courtesy of 720 Global, I think the following summary explains why such a reality is likely:

“While the increasing interest rate risk and price sensitivity coupled with a decreasing margin of safety (lower coupon payments) of outstanding debt is alarming, the story is incomplete. To fully appreciate the magnitude of this issue, one must overlay those risks with the amount of debt outstanding. Since 1982, the duration (price risk) of nominal U.S. Treasury securities has risen 70% while the average coupon, or margin of safety, has dropped 85%. Meanwhile, the total amount of U.S. public federal debt has exploded higher by 1,600% and total U.S. credit market debt, as last reported by the Federal Reserve in 2015, has increased over 1,000% standing at $63.4 trillion. When contrasted with nominal GDP ($18.6 trillion), one begins to gain a sense for how radically out of balance the accumulation of debt has been relative to the size of the economy required to support and service that debt. In other words, were it not for the steady long-term decline in interest rates, this arrangement likely would have collapsed under its own weight long ago.”

To all, I wish a happy and healthy new year. I look forward to bigger and better things.

Hope is not a strategy

Here is Bill Gross’ relatively tongue-in-cheek but mostly spot-on analysis of what the policymaker plan is to solve the global debt crisis:

1. As in Japan, the Eurozone, the U.S., and the UK, central banks bought/buy increasing amounts of government debt (QE), then rebate all interest to their Treasuries and eventually extend bond maturities. Someday they might even “forgive” the debt. Poof! It’s gone.

2. Keep interest rates artificially low to raise asset prices and bail out over-indebted zombie corporations and individuals. Extend and pretend.

3. Talk about “normalization” to maintain as steep a yield curve as possible to help financial institutions with long-term liabilities, but normalize very, very slowly using financial repression.

4. Liberalize accounting rules to make some potentially “bankrupt” insurance companies and pension funds appear solvent. Puerto Rico, anyone?

5. Downgrade or never mention the low interest rate burden on household savers. Suggest it is a problem that eventually will be resolved by the “market”.

6. Begin to emphasize “fiscal” as opposed to “monetary” policy, but never mention Keynes or significant increases in government deficit spending. Use the buzzwords of “infrastructure” spending and “lower taxes”. Everyone wants those potholes fixed, don’t they? Everyone wants lower taxes too

7. Promote capitalism – even though government controlled, near zero percent interest rates distort markets and ultimately corrupt capitalism as we once understood it. Reintroduce Laffer Curve logic to significantly lower corporate taxes. Foster hope. Discourage acknowledgement of abysmal productivity trends which are a critical test of an economic system’s effectiveness.

8. If you are a policymaker or politician, plan to eventually retire from the Fed/Congress/Executive Wing and claim it’ll be up to the Millennials now. If you are an active as opposed to passive investment manager, fight the developing trend of low fee ETFs and index funds. But expect to retire with a nest egg.

More on that Economic Boom

Courtesy of the folks at Zero Hedge, we know that over the last three months, the U.S. has gained 638,000 part-time jobs and lost 99,000 full-time jobs.  But, by all means, the stock market should be going gangbusters, and the media should be putting out articles like this...

More Reaction

Starting with the markets. After Trump won (which wasn’t supposed to happen), the stock market made an impressive move higher (which also wasn’t supposed to happen). The interesting cross-current, though, was how much interest rates moved up as well (in another clear example of how the Fed is not bigger than the market). Part of the “explanation” is that Trump’s anti-regulation, lower tax policy stance, within the backdrop of a Republican-controlled congress, should be good for growth. But, to my thinking, stocks were already very over-valued, and the debt problem did not suddenly go away. If these immediate reactions remain the trend, and don’t reverse, higher rates will have an impact at some point. That I believe.

As for the whining post-election, I chalk it up to my favorite internet meme: “When everybody gets a trophy, nobody knows how to lose.” To be clear (for the millionth time), I am not a fan of Trump, and as much as I do not like Hillary, I still couldn’t hold my nose and vote for the guy. But, any notion that the popular vote is more indicative or important than the Electoral College outcome is just ridiculous. Everybody knew the rules going in. As a result, the candidates campaigned so as to win the Electoral College, not the popular vote. Moreover, I am not even sure that the popular vote outcome is truly informative anyway. Sure, at a minimum, it tells us that the country is highly divided, but we also know that the existence of the electoral college structure in the first place means that plenty of people think that their vote holds very little value (I live in New York City and there was no difference in the election results whether I voted Clinton, Trump or not at all). Just consider that only 53% of eligible voters participated – the non-voters actually won the election by that metric. Therefore, it’s hard to argue that the popular vote tells us anything of import. But, everybody likes to have something to complain about. And in the land of safe spaces, winning the popular vote is something to hang on to.

Tick Tock...

I sounded "sad" in yesterday's post, but really I am pretty sanguine about the election.  Change is going to come even if the status quo candidate wins today -- and it's going to happen because we can't escape the debt problem in this country.  So, to explore the issue a bit, I put together a table of annual U.S. fiscal deficits and the cumulative changes in total outstanding public federal debt since 1960.  I think it brings home the point.  Enjoy.

Year	Deficit	Public Debt Fed
1960	4.8	290.5
1961	10.5	292.7
1962	7.2	302.9
1963	4.8	310.3
1964	5.9	316.1
1965	1.4	322.3
1966	3.7	328.5
1967	8.6	340.5
1968	25.2	368.7
1969	(3.2)	365.8
1970	2.8	380.9
1971	23.0	408.2	Bye-bye gold standard…notice anything about deficits afterwards?
1972	23.4	435.9
1973	14.9	466.3
1974	6.1	483.9
1975	53.2	541.9
1976	73.7	629.0
1977	53.7	706.4
1978	59.2	776.6
1979	40.7	829.5
1980	73.8	909.0
1981	79.0	994.8
1982	128.0	1,137.3
1983	207.8	1,371.7
1984	185.4	1,564.6
1985	212.3	1,817.4
1986	221.2	2,120.5
1987	149.7	2,346.0
1988	155.2	2,601.1
1989	152.6	2,867.8
1990	221.0	3,206.3
1991	269.2	3,598.2
1992	290.3	4,001.8
1993	255.1	4,351.0
1994	203.2	4,643.3
1995	164.0	4,920.6
1996	107.4	5,181.5
1997	21.9	5,369.2
1998	(69.3)	5,478.2	Clinton "Surpluses", but federal debt grows $400Bn…hmmm
1999	(125.6)	5,605.5
2000	(236.2)	5,628.7
2001	(128.2)	5,769.9
2002	157.8	6,198.4
2003	377.6	6,760.0
2004	412.7	7,354.7
2005	318.4	7,905.3
2006	248.2	8,451.4
2007	160.7	8,950.8
2008	458.6	9,986.1
2009	1,412.7	11,875.9
2010	1,294.4	13,528.8
2011	1,299.6	14,764.2
2012	1,087.0	16,050.9
2013	679.6	16,719.4
2014	484.6	17,794.5
2015	438.4	18,120.1	Federal Debt grows $1.4Tn…hmmm
2016	587.4	19,537.4