Monday, June 24, 2013

Why We Work Ourselves to Death

"Its the Economy, Stupid!" Was a famous campaign soundbite from a 1990's U.S. presidential election.

It seems today that everything is the economy. We worry about jobs, the "economy" (whatever that is), retirement, how to fund education (in order to make enough money so that we can participate in the "economy")... the key is, we worry.

LiveScience recently reported that only 1/3 of Americans described themselves as "happy". (Personally, I was impressed that the number was that high. I would not describe 1/3 of my Wall Street colleagues as "happy". I would not describe 1/3 of my former clients and partners as "happy". Of course, that's hardly empirical... readers can form their own opinion.)

In a politically charged society in which every Special Interest Group exists only to foment angst, anger, and resentment within their group I should think it would be very, very difficult to be "happy" while also being a "victim" - but there was something else going on, me thinks. That other thing I refer to personally as "the enslavement protocol", a programed format that has evolved (or if you are into conspiracy theories, and I am not, "was designed") to stop the individual from pondering the meaning of his/her existence and existing only for the purposes of participating in this thing called "the economy".

I have not read this book yet "Free Time: The Forgotten American Dream", by Benjamin Hunnicutt, only this excellent article in which the author answers a short series of questions, in which Hunnicutt poses the question "What Happened?" to the ideal of free time and personal examination in the United States that was blossoming in the early part of the 20th Century. Rather than calling it an "excellent article" I think that perhaps this article is, to my mind, one of the most important articles I have ever found on the Web because the article connects a couple of dots I have been pondering long and hard about but had been unable to connect.

From the article:

The book is about a mystery in U.S. labor history that I’ve been trying to unravel for 40 years. In the early 20th century, there was strong support for the “shorter hours” movement, and working hours were essentially cut in half as people began to embrace the possibilities of life beyond everyday work. In the 1920s and 1930s, people like [British economist John Maynard] Keynes suggested that by the mid 20th century—and definitely by the 1980s—we’d be working more like 2.5 hours a day! 
No one predicted that this process would stop. But after the Great Depression, working hours stabilized, and there has been no increase in leisure since. Even in the 1960s and 70s, there were predictions that the process would begin again—that there would be a return of short hours and increased leisure. But instead, there’s been a reversal. In 2005, Americans were working on average five weeks longer than in the 1970s. 
So what happened? Why did something that looked so inevitable stop? Why are we now working 10 hours a day rather than 10 hours a week? In the book, I explore various ways to explain this phenomenon, looking at the role of things like consumerism, government policies to stimulate the economy, and machines and technology in contributing to longer hours and reduced leisure.

I assert that what happened, Mr. Hunnicut, was the Federal Reserve Act of 1913, the 16th Amendment to the U.S. Constitution permitting the income tax (also of 1913), and the Federal Old Age, Survivors, and Disability Insurance program (otherwise known as Social Security), Medicare, and the Student Loan Machine. The unintended consequences of these government programs were the enslavement of The People, the end of Free Time, and the Permanence of Stress - and all of it inflicted by debt. The crazy thing is that the Left get's the problem but can't see their role in all of it.

The increase in the velocity of money and the money supply that came with creating a mountain of debt has not freed us any more than all of the "labor saving devices" that were sold to us actually saved any labor.

What really happened to "free time" was the enslavement of the masses to our present system of debt, and it is going to be hard to stuff the shaving cream back into the can on a macro basis. Individually, this is a rather easy bullet to dodge, its just difficult to have the chutzpah to actually duck.

This is what the corportocracy has reduced us to. We are no longer individuals pondering the meaning of our existence but workers in a hive slaving for our corporate masters in complete denial of our own mortality. The frenetic pace of our existence is an absolute imperative of the corportocracy - otherwise me might have the time to sit and think.

And they can't have that.

Monday, June 17, 2013

Forecasting is Failure Prone

I have to admit that the U.S. Federal Reserve and the various central banks have pulled off what I thought was darn near impossible – they have been able to re-inflate the credit system and with it financial asset prices - and it only cost about $5 Trillion in increased debt and several Trillion (I am not committing to the amount of Fed Bond purchases – but it is well over $2 Trillion) on the Federal Reserve Bank's balance sheet to increase the equity market assets by $9 Trillion or so.

See, that’s the thing you never hear anything about – the “cost” of the “cost/benefit” analysis that should be done every time government agencies put the 99% further on the hook.

Remember, that $9 Trillion in increased U.S. equity market value went onto the asset side of the 1%’s balance sheet. That $5 Trillion of Debt? Well, over 90% of it went onto the liability side of the 99%’s balance sheet, and over 90% of it went onto the Asset side of the 1%’s balance sheet. That's how it works. In order to increase the Money Supply the Fed and the U.S. Treasury inflated equity prices to enable the 1% to borrow against their equity holdings (and to allow others to borrow in order to buy equities from the 1%). All that is required is steadily increasing asset prices and that system works like clockwork.

So… the Fed/Central Banks have kept the world safe for capitalism, and in the process have enslaved the 99% to the 1% more powerfully than any Constitutional amendment could have ever done. This is the power of the Federal Reserve Act and the U.S. Federal Income Tax.


So what to do if you are an investor and you missed the rally in the U.S. equity markets? 

Well, that depends on a number of factors. If you are over 50, this is no time to be a hero. If you were not invited to the wedding, don’t go to the funeral. Yes, bond yields stink. Yes, bonds (paper maturing over 10 years) could blow up. Precious metals are not done killing people. Japan is no longer a bargain. China is an enigma. India looks pricey. Russia is too lawless for my tastes, and Brazil is the country of the future – and always will be.

So what to do? Rule 1: Don’t lose money. If you are going to trade, fine. But if you are wrong, you must be gone. I had the hottest run from 2000 to 2008 that a trader could have – and have been ice cold since  – but always I kept my personal motto in replay mode on my shoulder: “If you can’t be right, be liquid. If you can’t be right, be liquid. If you can’t be right, be liquid”, repeat ad nauseum... That means even when you are absolutely, positively “sure” you are right (snicker) you close out your positions when they are losing money. It is OK to miss the mother of all rallies - there are dozens of markets around the world, you are allowed to miss one. But losing capital defeats the purpose. So don’t do that.

And what about the US$? Well, if you are rich you should diversify. Dollars, yen, pesos, pounds, gold… but the inflationistas have been dead wrong. I don’t see them being right anytime soon.  So, if you are a “middle-class millionaire”, you know, those regular Joe’s with $2 to $10 million in assets, it is simply far more important to work on the cost side of your life.

More on that soon.


According to the media Americans are facing a “retirement” crisis. This, despite the most gargantuan social program/transfer payment system in the history of civilization - so what’s up?

It is the very program itself that is responsible for half of the issue.

The other half is the unfortunate fact that while “we” have extended the human lifespan “we” have not expanded the human healthspan/productive span. People still living at the age of 50 can expect to live past 80 in the U.S. Unfortunately, people living at the age of 50 can expect to be limited in their activities from the age of 59 (at the latest) on. That makes for 25+ years for women and 20+ years for men of consumption without production. Given that people are starting to work later and later this works out such that people are productive for just a little over half of their “adult” lifespan (and are not productive for a little under 50% of their adult lifespan).  It is impossible in this tax environment to accumulate enough savings to fund either your personal needs or the program. The implications for the financial system, taxes, our mental health, et al, are impressive. Some writers and bloggers try to get this into the debate but they are shouted out by those that benefit from the current system.

Going back to my earlier assertion, that a large part of the problem is the program itself, let us go back to the late 70’s early 80’s. Social Security/Medicare finances were on the rocks financially. The policy response was to increase the percentage of income subject to the “tax” (really insurance premiums) and to increase the percentage of “tax” itself  - and from that moment onward U.S. savings plummeted and never recovered – even though corporate pensions were eliminated for the most part and replaced with saving incentive vehicles like the 401k and 403b plans.

Coincidence? Not even a little bit. And while any implied causation on the decline in the U.S. fertility rate is a bit more tenuous than the link to the savings rate I have to point out that the correlation is uncanny.


So what about Oil?

The slow grind of Peak Oil/Peak Oil Light/Peak Oil Imports/whatever… is doing its thing. The U.S. increased domestic production by a couple of million barrels of Oil and ethanol since 2005. So why is Oil in the international markets over $100 per barrel?

The fact is that the late Matt Simmons and the Doomers got it wrong. Daniel Yergin and the Optimists got it wrong. The EIA and the IEA got it wrong (and my bet is that they will continue to get it wrong). That’s just par for the course. The international Oil marketplace is the mother of all markets. "Huge and complex" does not begin to do it justice. For myself I will always respect the opinions of markets in their totality over any individual. The Oil market tells me that we are close to a Peak in production but that market confidence is not what it was in the summer of 2008. In a 2.5 trillion barrel eventual resource recovery (+ or – 350 Billion barrels), with 30 Billion barrels per year being consumed, being off by 10 years either way is highly likely, but being off  by 20 years is not. We are 8 years into the bumpy plateau. As it turned out, there was a great deal more $100 per barrel Oil than many people thought. My bet is that there will be a heck of a lot more $200 per Oil than was contemplated... and that we will find that out in the not too distant future.

In the meantime, the "Tyranny of Distance" is already doing its thing to every American in the bottom half of median income. Driving 30 miles each way to a job that does not pay at least $X per hour/day is just not an option anymore. Hence the peak in per capita vehicle miles traveled. Some very smart people think "the Machines" are the reason that the labor participation rate is so low, and perhaps that is part of it, but I think the Tyranny of Distance is the larger contributor.

More soon!