As Good As It Gets?

Authored by Sven Henrich via NorthmanTrader.com,

So they got their tax cut done. In the middle of the night again no less, despite the vast majority of the American people not wanting it. The reason may simply be that the American public is not believing the false narratives that are being sold to them. And who can blame them? It starts at the top after all. When Donald Trump claims the tax plan would personally hurt him everyone knows that’s simply not true. And still his agents insists on defending the lie by lying some more.

So I had to ask, does truth still matter:

Does truth still matter?pic.twitter.com/7kAMGCPZWO

— Sven Henrich (@NorthmanTrader) December 19, 2017

The answer may not reveal itself for months to come.

US cooperations will see benefits to GAAP earnings and they will increase dividends and buybacks. All true. But they will not hire more or pay more. We already know this:

Watch a tax narrative die in mid question:
It"s all giggles for Cohn.
h/t @carlquintanilla pic.twitter.com/9zGWWnABQR

— Sven Henrich (@NorthmanTrader) November 14, 2017

And since none of these things have to do with organic business growth corporations will eventually face a situation where in the following years an unfavorable comparison will emerge as the artificial earnings benefits are priced in and then earnings growth will look to drag in comparison as the organic growth won’t make up for the artificial delta. Ironically then pressure for efficiency improvements will arise and companies will rightsize in the name of efficiency gains to make up the difference, i.e. layoffs. So ironically corporate tax cuts in the long term will do the opposite of what they were advertised to do. One can virtually see it coming. But hey. Party away.

Fact is the tax cuts will not pay for themselves and deficits will be gigantic and the US treasury is already set to sell $1.3 trillion in debt next year alone.

My general premise is that deficits will further explode once the economy slows as the tax base will have shrunk. Paul Ryan is already on the record wanting to cut social security and medicare benefits. And the AARP knows who will get hurt:

AARP comes out against the tax bill. They are "deeply concerned" this bill won"t leave US with enough $$ for Medicare and Medicaid. They also say the bill will "likely increase taxes" for many older Americans. #TaxBill pic.twitter.com/nC6gL4WzWY

— Heather Long (@byHeatherLong) December 19, 2017

Short term gain, long term pain, but the architects of this construct will be long gone enjoying their gains.

It’s been said that bull markets end on good news and in this regard this may be as good as it gets.

2017 will go down in history as a year where markets got everything beyond their wildest imagination:

The most liquidity injections by central banks ever. (Over $2 trillion). The loosest financial conditions in cycle history:

A Fed that promised a reduction in its balance sheet but actually only delivered noise:

Any time now. ???? pic.twitter.com/IECCKem1dm

— Sven Henrich (@NorthmanTrader) December 20, 2017

In addition markets got to enjoy solid earnings growth coming from weakness in the years before. Never mind that most of the price expansion was multiple expansion related:

Other factors favoring asset prices: Negative interest rates across the globe continued to force money into high risk assets (“pushing people“). Central banks such as the SNB kept buying billions of dollars of US stocks. Record inflows of passive ETF inflows chasing returns they can’t find elsewhere. The elimination of organic sellers as part of a normally functioning market place. Buybacks, while not at a record pace, still continuing with billions upon billions of dollars allocated to reduce the float of shares. None of it related to organic growth.

And hence the disconnect of asset valuations from the underlying economy is now larger than during previous market peaks:

My summation here: Things will never be better for bulls. The supply demand equation will never be tilted so uniformly in one direction as they are now.

The combined effect of what I summarized above has produced massive multiple expansion and the end of any corrective activity in markets accompanied by record volatility compression:

The elimination of any price discovery. And what this chart above shows in the macro we see in the daily price action every day: Gaps, ramps & camps with virtually no price discovery in between:

Every day:

This is hubris. It’s not rooted in an economic growth base to back up the valuation growth presumed going forward. And the technical dislocation is not sustainable and I maintain all these gaps will fill into 2018.

Has it gone farther than we expected? Sure. Once you remove sellers from a market who knows where it ends up.

After all we find ourselves in an environment where companies can reach $10 billion market caps in the blink of an eye based on absolutely nothing.

The very definition of a mania.

So when I asked the other day whether we are sitting on a generational opportunity to sell equities I meant this not as a facetious question. Now granted I can’t say whether we top here, today or next year.

After all we now have a president literally promising higher stock prices on twitter:

Stocks and the economy have a long way to go after the Tax Cut Bill is totally understood and appreciated in scope and size. Immediate expensing will have a big impact. Biggest Tax Cuts and Reform EVER passed. Enjoy, and create many beautiful JOBS!

— Donald J. Trump (@realDonaldTrump) December 19, 2017

Stock prices are now a matter of national security. The Fed views a sudden decline in asset prices as a threat to the economy and the president sees stock market levels, the poster child of widening wealth inequality in the population, as a benchmark of his presidency:

What hasn’t been priced in: Less looser financial conditions, less central bank liquidity, no more tax cut carrot. But perhaps more importantly? How sensitive will the consumer be to higher rates? I asked this question in Riddle me this.

Fact is consumers keep piling into debt while rates are rising:

And with rising rates come higher interest payments:

I trust you see the math problem there. Indeed the majority of Americans may find that the tax cut crumbs coming their way may go toward servicing their debt:

Perhaps that’s ok if unemployment stays low forever:

The unemployment chart however suggests that this is as good as it gets.

How Wealthy Americans Are Already Trying To Game Trump"s Tax Bill

Earlier this month, Trump touted the idea that, under his tax plan, 1,000"s of Americans would be able to "file their taxes on a single, little beautiful sheet of paper."  Of course, this so-called "postcard" that Trump and Paul Ryan have referenced repeatedly over the past several months is basically nothing more than a 1040EZ shrunken down to fit on a smaller piece of paper but who are we to rain on their parade?

That said, while many Americans will enjoy an easier tax filing in 2018, or at least as easy as the 1040EZ, others, especially high-income folks living in high-tax states like New York and California, are suddenly scrambling to retain accountants to figure out how they might best game the new tax code to avoid higher rates. 

Of course, one of the key opportunities for "gaming" results from the new taxation rules for "pass-through" entities.  Unlike high-income earners filing as individuals who lost a substantial portion of their deductions, pass through entities, with the exception of certain professionals like doctors, lawyers and stockbrokers, are still eligible for a 20% deduction from their earnings.  To put that into perspective, a 20% deduction reduces Trump"s top marginal tax rate for pass-through entities to 29.6% from the 37% that will be paid by individual filers.

Not surprisingly, as CBS points out, the change has pretty much everyone suddenly plotting a post-holiday discussion with their boss to see if they can be fired and promptly re-hired as an independent contractor.

First, you convince your boss to let you quit and hire you back as a contractor after you"ve set yourself up as a sole proprietorship. Assuming you can do that and your tax treatment is better, you can offer your ex-employer the same services for less -- the company does not have to worry about giving you benefits or paying its share of your Social Security and Medicare taxes. That latter part is the iffy one for you, and the numbers would have to work out. "Do you really want to go without health care and a 401(k)?" asked online financial adviser group Betterment"s tax expert, Eric Bronnenkant.

Meanwhile, even lawyers, who are specifically excluded from the pass-through rules, could qualify by leaving their law firms and pursuing a position as an in-house counsel.

An end run works like this: A law partner, sick of the barricade to a kinder tax rate other pass-through people enjoy, moves over to be in-house counsel at an engineering firm, which is not on the ban list. "Now she"s no longer in a specified service," wrote Ari Glogower, a law professor at Ohio State University, on Vox.com. "Voila, she may qualify for the pass-through deduction."

As we pointed out earlier this week (see: Why Wall Street Is Furious At The Trump Tax Plan), for others who can"t game the pass-through system, like most of the traders earning big bucks on wall street, the best option might be to simply move from New York to a lower-taxed state like Florida or Texas.

Still others are considering a move to lower-taxed states like Florida and Texas which, as Todd Morgan, chairman of Bel Air Investment Advisors in Los Angeles notes, sounds like a great idea right to the point that you realize that actually entails uprooting your entire family and starting a whole new life in a different part of the country...something that generally doesn"t go over well with teenage kids..."If you’re already rich why would you move to another state and live a different life just to save some money on taxes?  What are you going to do with the money? Buy more clothes? Eat more food?"

Finally, the tax bill could even influence decisions on if/when people decide to get a divorce.  As Bloomberg points out, starting January 1, 2019 divorce suddenly becomes way more attractive for the recipients of alimony and punitive for payers as the payments will not longer be counted as income or allowed as a deduction.

Tax considerations are even changing for those getting a divorce.

 

Under the law, divorced taxpayers who pay alimony would no longer be able to deduct those payments from their income, and recipients of alimony would also no longer need to report the money as income. However, the provision doesn’t go into effect right away and instead applies to divorces finalized after Dec. 31, 2018. So, depending on whether you’re set to pay or receive alimony, you might want to speed up or slow down those divorce proceedings.

...which may or may not have been a clause specifically added by Melania...

Paul Craig Roberts Exposes "Plunder Capitalism"

Authored by Paul Craig Roberts,

I deplore the tax cut that has passed Congress. It is not an economic policy tax cut, and it has nothing whatsoever to do with supply-side economics. The entire purpose is to raise equity prices by providing equity owners with more capital gains and dividends.

In other words, it is legislation that makes equity owners richer, thus further polarizing society into a vast arena of poverty and near-poverty and the One Percent, or more precisely a fraction of the One Percent wallowing in billions of dollars. Unless our rulers can continue to control the explanations, the tax cut edges us closer to revolution resulting from complete distrust of government.

The current tax legislation drops the corporate tax rate to 20%. This means that global corporations registered in the US will be taxed at a lower income tax rate than a licensed practical nurse making $50,000 per year. The nurse, if single, faces in 2017 a 25% marginal tax rate on all income over $37,950.

A single person is taxed at a rate of 33% on all income above $191,651. 33% was the top tax rate extracted from medieval serfs, and approaches the tax rate on US 19th century slaves. Such an upper middle class income as $191,651 sounds extraordinary to most Americans, but it is so far from the multi-million dollar annual incomes of the rich as to be invisible. In America, it is the shrinking middle and upper middle class incomes that bear the burden of income taxation. The rich with their capital gains from their equity holdings are taxed at 15%.

Even single individuals who earn between $1 and $9,325 are taxed at 10% on their pittance.

The neoliberal economists who are the shills for the rich, Wall Street, and the Banks-Too-Big-Too-Fail claim, erroneously, that by cutting the corporate income tax rate to 20% all sorts of offshored profits will be brought back to the US and lead to a booming economy and higher wages.

This is absolute total nonsense. The money won’t come back, because it is invested abroad where labor costs are lower, if invested at all instead of buying back the corporation’s stock or buying other existing companies. After 20 years of offshoring US manufacturing and professional tradable skills and the incomes associated with the jobs, who is going to invest in America? The American population has no income with which to purchase the goods and services from new investment, and the American population’s credit cards are maxed out.

All that is going to happen is that Wall Street will calculate the lower tax rate into a higher equity price. Wall Street can do this without any of the offshored earnings coming home. Suddenly, everyone who owns equities will experience a boost in wealth, or the boost has already occurred in anticipation of the handout.

The deficit-conscious Republicans have put into the Bill for Enhancement of the Rich’s Wealth, cuts in social services in order to “save workers from higher interest rates from budget deficits.” This is more dishonesty. If the Fed lets real interest rates rise to any meaningful amount, derivatives will unwind, and the Fed will have to create trillions more in new dollars to keep its ponzi scheme in place. The deficit that results from the tax cut will be covered by the Fed purchasing the Treasuries, not by a rise in interest rates.

What we are witnessing in the US and indeed throughout the western world is the total failure of capitalism. Capitalism is now merely a looting machine. The financial sector no longer supplies capital for production. What the financial sector does is to turn discretionary consumer income into interest and fee payments to banks. Aggregate demand can only grow through debt expansion, and the consumers reach a point where they cannot expand their debt.

Capitalism, hiding behind “globalism,” which is misrepresented as a good thing when it is death itself, locates production where labor is cheapest, thus depriving First World labor of good wages and work opportunities and putting First World countries on the path to becoming Third World countries.

Short-term profits and executive and board bonuses and stock options are maximized at the cost of the destruction of the domestic consumer market.

Plunder Capitalism also privatizes as much of the public sector, such as the military, as possible, thus driving up the cost of the Pentagon’s budget. Jobs that the soldiers themselves formerly did are given to politically-connected firms. What was once KP (kitchen patrol) is now provided by an outside private service. Private mercenaries hired by the Pentagon collect as much in a month as troops in the line of fire earn in a year. I don’t know that the army any longer has a supply organization other than the private business that has the contract.

Medicare and Medicaid are the next to be privatized, along with Social Security. The tax cut will result in deficit and high interest rate hype, and these lies will be used to save the workers from high interest rates on their mortgage, credit card, and student loan debt by scaling back or privatizing Medicare, Medicaid, and Social Security.

The environment and public lands will be sacrificed to the private profits of timber, mining, and energy companies. Grizzly bears and wolves are losing their protection under the endangered species act so that states can sell trophy hunting licenses to men who have to prove their manhood by killing an animal with a high-powerful rifle at a safe distance.

What we are witnessing is the complete looting of America and the entirety of the West. While the Western World collapses, the insouciant, submissive people sit there sucking their thumbs while they are being ruined.

Nothing is left of the West except looters at work.

This tax bill is an abomination, an act of brutal plunder. Its sponsors should be tarred and feathered and ridden out of town on a rail, if not hung from a lamp post.

Buchanan Fears A GOP Bloodbath - The Lesson For 2018

Authored by Patrick Buchanan via Buchanan.org,

The day after his “Silent Majority” speech on Nov. 3, 1969, calling on Americans to stand with him for peace with honor in Vietnam, Richard Nixon’s GOP captured the governorships of Virginia and New Jersey.

By December, Nixon had reached 68 percent approval in the Gallup Poll, though, a year earlier, he had won but 43 percent of the vote.

Contrast Nixon’s numbers with President Trump’s.

Where Trump won 46 percent of the vote against Hillary Clinton, his approval rating is now nearly 10 points below that. He has less support today than on the day he was elected, or inaugurated.

Tens of millions of Americans are passionately for Trump, and tens of millions are passionately against him.

The GOP problem: The latter cohort is equal in intensity but larger in number, and this is especially true in purple and blue states like the commonwealth of Virginia.

There is no way to spin Tuesday as other than a Little Bighorn, and possible harbinger of what is to come.

In George Washington’s hometown of Alexandria and Arlington County, Democratic candidate Ralph Northam won 4-1. In Fairfax and Loudoun counties, the most populous D.C. suburbs, Northam won 2-1.

In the rural counties, however, Republican Ed Gillespie rolled up the landslides.

As there are two Americas, there are two Virginias.

Consider. Of all the delegate seats in the Virginia assembly allocated to Alexandria, Arlington, Fairfax, Loudoun and Prince William counties, the GOP can today claim only one.

Northern Virginia is taking on the political and socioeconomic profile of San Francisco.

Another and perhaps insoluble problem for the GOP, not only in the Old Dominion, is demography.

Democrats rolled up their largest margins among African-Americans, Hispanics, single women, immigrants and the young. And these voting blocs are growing.

Gillespie ran up his largest margins among white males near and past retirement age and married white women. These Middle Americans are in inexorable demographic decline.

The Greatest Generation is passing on, and baby boomers born between 1946 and 1951 are now on Medicare and Social Security.

Yet reports of the GOP’s demise are grossly exaggerated.

Though Gillespie lost by nine points, Jill Vogel, who ran for lieutenant governor on Trumpian issues, lost by six.

By 2-1, Virginians do not want their Confederate monuments torn down. Northam, sensing this, moved toward Gillespie’s position as the campaign went on. Also, among the 27 percent of Virginians who regarded taxes and immigration as the top issues, Gillespie won by nearly 4-1.

It was health care concerns, the No. 1 issue, that buried the GOP.

As for mainstream media rage and revulsion at the “racism” of Gillespie ads suggesting Northam supported sanctuary cities and was soft on the MS-13 gang, this reflects an abiding establishment fear of the Trumpian issues of illegal immigration and crime.

Then there was the Republican messenger.

A former chairman of the RNC, Washington lobbyist and White House aide, Gillespie is an establishment Republican unconvincing in the role of a fighting populist conservative. His speeches recalled not Trump’s run, but that of the Republicans Trump trounced.

Ed Gillespie was Virginia’s version of Jeb Bush.

Message from the Old Dominion: A purple state, trending blue, with its economy recession-proof as long as Uncle Sam across the river consumes 20 percent of GDP, is a steepening climb for the GOP. You must have a superior candidate, comfortable with cutting issues, to win it now.

Republicans are being admonished to drop the monuments-and-memorials issue and respect why NFL players might want to “take a knee” during the national anthem.

But if to win in Northern Virginia the GOP must move closer to the Democratic Party, why would the rest of the state want to vote for the Republican Party?

During the campaign, both candidates moved rightward.

Northam rejected sanctuary cities and accepted Lee and Jackson on Richmond’s Monument Avenue, and Gillespie ran Trumpian ads, even if they seemed to clash with the mild-mannered candidate himself.

The lesson for 2018:

While the solid support of Trumpians is indispensable for GOP victory, it is insufficient for GOP victory. Republican candidates will have to decide how close they wish to get to President Trump, or how far away they can risk going and survive.

Facing this choice, Sens. Jeff Flake and Bob Corker decided to pack it in. Other Republicans may follow. But a house divided will not stand.

Republicans should recall that off-year elections are often problematic for incumbent parties. In 1954, President Eisenhower lost both houses of Congress. After pardoning Nixon in 1974, Gerald Ford lost 49 seats. In 1982, Ronald Reagan sustained a 27-seat loss.

In 1994, Bill Clinton lost 53 seats and control of the House. In 2010, Barack Obama lost 63 seats and control of the House.

If the nation chooses to turn Congress over to Nancy Pelosi and Chuck Schumer in 2018, will that be all Trump’s fault? Or should perhaps some credit go to Paul Ryan, Mitch McConnell and venerable political tradition?

Who"s Going To Eat The Losses?

Authored by Charles Hugh Smith via PeakProsperity.com,

Unsustainable.

Many more people need to understand what that word really means, and how it applies to pretty much everything in the current human living arrangement. Especially the so-called "developed" nations.

Here’s the dictionary definition:

Let"s take these three definitions one at a time.

First: our entire economic model, which dependent on borrowing at a faster rate than income (GDP) grows, is something that simply cannot be maintained at its current rate or level. Check.

 

Second: depleting species, soils and aquifers are all wildly unsustainable practices that are accelerating. Check.

 

Last (and most glaring of all): the world’s leadership (and we use that term very loosely) continues to insist on adhering to the indefensible idea that infinite growth on a finite planet is possible  Checkmate.

Said another way, the daily comforting stories we are told about how all of this somehow makes sense are just a load of nonsense. Each is entirely unsupportable by the evidence, facts and data.

What happens when a culture’s dominant narratives are not just unsatisfactory, but entirely unworkable? 

Well, for one thing, the younger generations that are being asked (goaded?) to step into an increasingly flawed future begin to resist. Which is completely understandable. They have nothing to gain if the status quo continues.

At the same time, the older generations mostly just settle into a stubborn insistence that everything will be fine if everyone will just do more of precisely what got us into the mess in the first place. Younger people should step up to make sure Medicare/Social Security/pensions remain fully funded, and buy the financial assets and homes of downsizing seniors at top dollar. The boomers have everything to lose if the status quo changes.

Why do I bother to tell you all this?  Why have I spent the last ten years of my life trying to alert the public of risks they keep telling me make them uncomfortable?  Because I care. Because I hope to help a few people preserve their hard-earned wealth. Possibly even save a few lives with this information. And, ultimately, to help people lead lives filled with greater connection, aliveness and joy.

The key to all of these better outcomes is having a clear-eyed view of "what is", and then being able to predict "what’s next". Which means that understanding is the first step. Informed action follows from that.

Mind The Gap

In the US, through selfish over-consumption, the baby boomer generation has screwed the prospects for following generations. It"s now doing everything to deny and defend its extraordinarily self-serving and short-sighted decisions, and delay the repercussions for as long as possible.

For the record, I seriously doubt the current younger generations would have behaved any differently were we to teleport them back in time  The boomers came of age when net energy from oil was still climbing and that ‘taught’ them about ‘how the world worked.’  When you have abundant resources, especially high net energy oil, you can pretty much do anything you want.

But today?

Not so much. A BIG fallacy of the past is that wars lead to rapid economic expansion afterwards. A more correct version of this is that the destruction of war leads to rapid recovery and rebuilding ONLY IF you also have access to abundant high net energy oil. If you don"t, wars only lead to destroyed economies.

Think of it this way: an 18-year-old who injures his knee has the resources of youth to help them recover completely. But an 80-year-old? Not so much.

This fallacy of thinking that we can just have another nice major war (North Korea?), or a few major hurricanes (Harvey, Irma and counting...), and then not only recover, but return better than ever is a dangerous delusion to hold. It"s no different than our 80-year-old thinking that taking up downhill skateboarding would be a safe and sensible thing to do. 

Self-deception is a process of denying or rationalizing away the relevance, significance, or importance of opposing evidence and logical argument. Self-deception involves convincing oneself of a truth (or lack of truth) so that one does not reveal any self-knowledge of the deception.

(Source)

The inter-generational resentment mentioned above is growing ever more extreme and it’s creating a significant social (and soon political) disturbance that will prove to be utterly disappointing for all. Already we see the signs in failing pensions having to cut benefits, young people opting out of such bulwarks of cultural stability as car ownership, marriage and having children.

If the DNC hadn’t straight up stolen the primary from Bernie Sanders, it’s quite possible that he’d have handily won the US presidential election and we’d already be feeling the effects of the political power of the next generation.

In this view, Trump is nothing more than the first (but not final) reflection of boomer denial backfiring badly. The sclerotic remnants of the past held fast and tried to jam Hillary down the throats of a very unenthusiastic electorate that long ago concluded that business-as-usual is literally a vision without a future. And so Hillary was rejected and Trump, the only alternative left standing, got the victory.

Who’s Going To Eat The Losses?

The US economic data to back up this decidedly dim view of things could not possibly be more robust and unassailable.

If we were allowed just one chart, just a single piece of data to back up this assertion, it would be this one:

The oft-cited and worried over ‘US federal debt’ of some $20 trillion is the lowest dark-blue shaded area on that chart .It’s not even 10% of the predicament the country faces

No country has ever dug out from under a debt + liability load anywhere close to that amount. It"s just too big a hole to climb out of.

With GDP growth stubbornly anemic for going on 12 years now, and no fresh sources of high net energy to fund future GDP growth, we can say this very simply about the promises our politicians are soothingly singing to us:

Any thought that these promises will be kept is delusional.

They won’t be kept because they can’t be kept. It’s really no more complicated than that.

Only one question matters when presented with a chart like this: Who’s going to eat the losses?

The keepers of the status quo, such as Hillary and Trump and their cozy relationships with Goldman-Sachs, et al., want the answer to be ‘the taxpayers’ (and not ‘the banks’). But they"d never publicly admit to that. So they pretend that losses will never matter, and instead promise perpetual prosperity for all.

So people, companies, communities and the entire nation of the United States makes plans and investments as if the above chart didn"t even exist.

This is no different than our 80-year-old refusing to draft a will because he simply can"t face the reality that one day he"ll need one. Such denial and self-delusion make a terrible strategy to live by.

The fact that you live in a world where the leaders of most countries are engaging in willful denial does not mean you have to be a victim to the consequences of their irrational delusion.

This is why having a clear-eyed view of the data, knowing your history, and forecasting the most likely outcomes are critical for positioning yourself for safety.

Those who do this empirically realize that the global economy is far more likely to contract, possibly viciously, before it expands. Given this, today"s global equity prices and non-investment grade bonds are absolutely mis-priced for such an outcome -- instead they"re practically priced for perfection, and thus due for a major correction.

Last week we issued a report warning of the multiplying number of important indicators signaling a coming market correction and economic recession.

*  *  *

In Part 2: How To Deal With Our Dangerous Markets And Failing Future, we explain why the fall from today"s market highs will be so painful, and where today"s concerned investor can look when seeking safe haven for their capital. We have the world"s central banking cartel for our situation, who have -- for the third time in less than 20 years -- blown a gigantic bubble.  Or rather, have blown a nested set of bubbles (stocks, bonds, housing), each of which will help accelerate the popping the others when the time comes. As with a developing hurricane, the time to prepare yourself for these eventualities is well before they actual manifest.  Once they’ve arrived, your ability to respond and react will be hampered by the fact that your efforts will be accompanied by those of thousand and millions of other people. Don"t be one of the panicked herd. Take prudent action today. Click here to read Part 2

Welcome to the Age of Fury: “This Simmering Anger of the Populace Is Going to Start Boiling Over”

This article was originally published by Chris Martenson at PeakProsperity.com

Are You Infuriated Yet?

by Chris Martenson

More and more, I’m encountering people who are simply infuriated with how our “leaders” are running (or to put it more accurately, ruining) things right now. And I share that fury.

It’s perfectly normal human response to be infuriated when an outside agent hurts you, especially if the pain seems unnecessary, illogical or random.

Imagine if your neighbor enjoyed setting off loud explosives at all hours of the day and night. Or if he had a habit of tailgating and brake-checking you every time he saw your car on the road. You’d been well within your rights to be infuriated.

Or to use a much more common example from the real world : When your politicians repeatedly pass laws that hurt you in favor of large corporations — that, too, is infuriating. Especially if those actions run directly counter to their campaign promises.

There’s a lot of be infuriated about in the world today, so go ahead and embrace your rage. By doing so, you’ll be in a better mindset to understand things like Brexit, Catalonia, and Trump, each of which is a reflection of the fury of your fellow citizens, who are finally waking up to the fact that they’ve been victims for too long.

An easy prediction to make is that this simmering anger of the populace is going to start boiling over more violently in the coming years. Welcome to the Age of Fury.

‘Over The Top’ Dumb

Do you ever get the sense that, as a society, we’re being dangerously reckless? Perhaps so dumb that we might not recover from the repercussions of our stupidity for many generations, if ever?

There are economic and financial idiocies in motion that are, by themselves, unsolvable predicaments without a peaceful solution. But when combined with resource depletion and declining net energy, they’re positively intractable.

Take for example the hundreds of trillions of dollars-worth of underfunded entitlement and pension promises. Those promises cannot be kept and they cannot be paid. Everybody with a basic comprehension of math can conclude as such.

Yet we continue to operate as if the opposite were true. We comfort ourselves that, somehow, all the promised future payouts will be made in full — even though the funds are insolvent, their returns are much lower than the actuarial projections require, and payout demand mercilessly rises each year.

Spoiler alert: This isn’t some future disaster lying in wait. It’s unfolding right now.

Take these headlines spanning the past several years:

• Congress approves plan to allow pension cuts (Dec 2014)


• 273,000 union workers and retirees brace for pension cuts (May 2, 2016)


• In unprecedented move, pension plan cuts benefits promised to retirees (Jan 27, 2017)  — note the laughable use of “unprecedented” here


• Teamsters face 31 percent pension cut (Mar 7, 2017)


• New York State Teamsters pension fund cuts approved (Sept 13, 2017)

When it comes to broken retirement promises, the future is now. It will be with us for a very long time.

Why? Because the math simply doesn’t work. It’s broken, it’s been broken for a long time. You can’t put too little in the piggy bank at the start, then raid it over time, and still expect to have enough at the end.

And yet we, as a society, have preferred to pretend as if that weren’t the case. Which, it turns out, was a terrible “strategy.”

But if you think that’s bad, you’re going to positively hate this chart:

The pension liabilities now blowing up are contained within the thin green smear in the middle of this chart. Think on the nation’s inability to handle that single crisis, and now reflect on how overwhelmed it’s going to be by the far larger predicaments that lie elsewhere on the chart.

The Infuriating Plunder-fest That Is Health Care

The Medicare liabilities (the orange and largest band on the above chart) are immense, and will only become more so as our largest demographic, the baby boomers, further ages. But they become especially infuriating when seen in the larger context of the racketeering that drives the health care system in the United States.

Instead of doing anything constructive about the high number of IOUs building up within Medicare, Washington DC politicians are sidestepping the most obvious elements that contribute the most to the problem. Enormously wasteful, the “healthcare” system is entirely out of control and spiraling deeper into an abyss that threatens to literally destroy the most productive segment of the US social structure: the middle and upper middle classes.

That should be a topic of serious discussion in the halls of power. But none is being had.

Literally each day brings worse news on the skyrocketing costs of healthcare. But, as with most topics, the media mostly focuses on the symptoms (prices) rather than the causes of the issue.

The real culprits here are the insurance cartel and a hospital system that has the most unfair, incomprehensible, and inhumane billing process ever devised. One easy to grasp feature of both the insurance companies and conspire to pay the executives far more than they actually deserve or are truly worth.

Health care premiums for 2018 set to go up by as much as 50 percent

Oct 5, 2017

Several states have announced rates for health insurance premiums on the Obamacare exchanges for 2018. Topping the list is Georgia, with rates that are 57 percent higher than last year, while Florida said some premiums will be 45 percent higher.

Among the reasons for these increases is the uncertainty about the future of the Affordable Care Act. President Donald Trump has vowed to repeal and replace the health care law, which was passed under his predecessor President Barack Obama.

Insurers are raising premiums in the face of repeated threats from President Trump to stop funding so-called cost-sharing reductions, payments to insurers that cover out-of-pocket costs for some low-income consumers. Trump previously referred to these payments as “bailouts” for insurance companies and threatened to stop making the payments so as to “let Obamacare implode”. (Source)

That’s the story the health insurers are going with: they have to raise rates because they’re uncertain whether they will get AS MUCH LOOT under the new rules being considered as they did under the utterly disastrous Obamacare provisions.

How much loot are we talking about? Look at this chart of the stock price of United Healthcare (UNH) since the passage of the Affordable Care Act (aka Obamacare):

If this chart showing massive near-4x gains in just 5 years, coupled with your steep annual premium increases, doesn’t infuriate you, you are just not getting it.

Even if your employer pays for your health care (somewhat obscuring the true impact of premium increases), the cost to you is fewer and lower pay increases, as well as steady yearly reductions in covered services along with higher co-pays and deductible amounts.

Still not infuriated? Ok, maybe this will do the trick. Here how much executive compensation at the major insurers was last year:

(Source)

The average family health care insurance premium in 2016 was $18,764, meaning that Mark Bertolini from Aetna alone required 100% of the premiums from more than 2,200 families just to pay him in 2016. Of course, the “C-suite” of these health care insurers are loaded with other high-paid parasites who are just as busy gouging the young and old alike.

This is a complete travesty and joke. Congress and the Senate, sitting on their deservedly low approval ratings, pretend they cannot do anything about it. Too complicated they say. Bullshit I say. Go after the obscene pay packages and profits of the insurance industry as a first matter of business. Then make it a crime for hospitals to bill people differently for the exact same services.

That’s a no-brainer. Can you imagine if your mechanic had a secret pricing formula for every customer that was, literally, based on their maximum ability to pay? Nobody would stand for it, it’s disgusting that we tolerate this when it comes to something as vital and necessary as our health and even lives.

Fury, not tolerance, is what’s needed now.

Conclusion (to Part 1)

The future has arrived. The pension losses are here and just getting started and the future will have a lot more of those sorts of broken promises.

The health care insurance crisis has been with us for 20 years or so now and Obamacare just put some extra accelerant on that fire, which is now consuming middle class households by the tens of thousands.

Both the pension and health care crises are infuriating and self-inflicted wounds. We could have avoided them by making wiser choices in the past. We didn’t. We could limit their damage by making better choices today. We almost assuredly won’t.

Current conversations and proposals are thinly disguised sleight-of-hand movements whose purpose is to deflect attention from the thefts underway. Anybody who studies the system and its math comes to the same conclusion: the corporations have all the power and they are misusing it for private gain.

Why there aren’t more politicians willing to call a spade a spade and actually protect their constituents is a real mystery. But the next wave of populist candidates certainly won’t be. People are sick and tired of being asked to give more and more while corporations and wealthy elites keep taking more and more.

It’s simply infuriating.

But that’s not the worst of it. The mistakes we are making right now in terms of energy policy and ecological destruction are far more dangerous to your personal health, liberty and future prospects than a simple market crash.

In Part 2: It’s Time For Action, we uncover the hidden downside risks in today’s financial markets and explain how, as destructive as a coming market crash will be, the longer-term damage to society and risks to your well-being are rooted in the potential breakdown of the systems we depend on to live.

As with pensions and health care, we are pursuing similar dangerously misguided policies in our farming & food systems, extraction of industrial resources, and ecological management — to name just a few.

There’s an appropriate time for fury. And that time is now — provided we use the anger to spur us into constructive action. Get your fury on.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

Examining The Most Hated Bull Market Ever

Authored by Lance Roberts via RealInvestmehtAdvice.com,

From last week:

“The seemingly “impervious” advance since the election last November, has had an interesting “stair step” pattern with each advance commencing from a breakout of a several month 3%-ish consolidation range. Furthermore, each advance then pushes to a 3-standard deviation extreme, black circles, of the 50-dma before beginning the next consolidation trading range.”

The last leg higher has been directly responsive to the ramp up in the political “marketing surge” surrounding “tax cuts and tax reform.” With the House having already passed their respective budget resolutions, late Thursday, the Senate passed a budget blueprint for the next fiscal year. With both of the “budget resolutions” in place, it was seen as clearing a hurdle to the goal of overhauling the tax code.

This is not new, of course, as the entire rally for the markets since the election has been driven by hopes of lower taxes, despite disaster, floods, fires and Central Bank threats of liquidity extraction.

The bulls are clearly in charge which keeps us allocated to towards equity risk currently.

Do not be mistaken, this “rally” IS all about tax cuts. Despite many who are suggesting this has been a “rational rise” due to strong earnings growth, that is simply not the case as shown below. (I only use “reported earnings” which includes all the “bad stuff.” Any analysis using “operating earnings” is misleading.)

Since 2014, the stock market has risen (capital appreciation only) by 35% while reported earnings growth has risen by a whopping 2%. A 2% growth in earnings over the last 3-years hardly justifies a 33% premium over earnings. 

Of course, even reported earnings is somewhat misleading due to the heavy use of share repurchases to artificially inflate reported earnings on a per share basis. However, corporate profits after tax give us a better idea of what profits actually were since that is the amount left over after those taxes were paid.

Again we see the same picture of a 32% premium over a 3% cumulative growth in corporate profits after tax. There is little justification to be found to support the idea that earnings growth is the main driver behind asset prices currently.

We can also use the data above to construct a valuation measure of price divided by corporate profits after tax. As with all valuation measures we have discussed as of late, and forward return expectations from such levels, the P/CPATAX ratio just hit the second highest level in history.

The reality, of course, is that investors are simply chasing asset prices higher as exuberance overtakes logic and their actions prove the case.  According to data from FactSet, stock-based exchange-traded funds have seen nearly $16 billion in inflows over the past week, which represents an acceleration from recent positioning. Over the past month, about $31.3 billion has gone into stock-based ETFs. The chart below of data from ICI shows much of the same with monthly equity ETF inflows surging since the election.

The same is seen when we also add in equity mutual funds for a look at total equity asset flows.

Not surprisingly, those actions have been backed by their massive elevation in bullish sentiment.

As UMich noted:

“Consumer sentiment surged in early October, reaching its highest level since the start of 2004. The October gain was broadly shared, occurring among all age and income subgroups and across all partisan viewpoints.

 

There is an unmistakable sense among consumers that economic prospects are now about as ‘good as it gets."”

Most hated bull market ever…hardly.

Historically speaking, you only witness such exuberance in the latter stages of an expansion, not the beginnings of one. The latest survey indicates that consumers do not anticipate an economic downturn anytime in the foreseeable future, which from a contrarian perspective may be a clear warning sign.

Clearly, the expected benefits of tax cuts and reforms is leading investors to overpay for something today they are hoping will become fairly valued tomorrow. In other words, instead of prices catching “down” to market fundamentals, investors are hoping fundamentals will “catch up” to prices.

Unfortunately, there isn’t a previous case in history where this has been the case.

Also, when we look at 20-year trailing returns, there is sufficient historical evidence to suggest total, real returns, will decline towards zero over the next 3-years from 7% annualized currently. 

(These are trailing 20-year total real returns, not forward)

Re-read that last sentence again and look closely at the chart above. From current valuation levels, the annualized return on stocks by the end of the current 20-year cycle will be close to 0%. A decline in the next 3-years of only 30%, the average drawdown during a recession, will achieve that goal. 

For investors, this is crucially important. In the article “Apathy & The Death Of Your Financial Goals,” I discussed the reality of the damage caused by market drawdowns. As I stated:

“Crashes matter, a lot.” 

While investors may “get back to even,” eventually, following a crash, the shortfall from their actual financial goal continues to build.

This is why using some method of risk management, such as a simple moving average crossover, can help alleviate some of the financial damage caused by drawdowns.

• YES! You will miss out on some gains in the market.


• YES! Sometimes you will be “stopped out” and have to “buy back in.” 


• YES! You will be much more successful in obtaining your financial goals long-term.

After all, isn’t that why you invest in the first place?

What I can assure you of is that you WILL be wrong from time to time and you WILL lose money. But that is the inherent nature of investing. It is a “RISK” based endeavor.

However, I can absolutely guarantee that trying to “passively index” in the current market environment will absolutely wind up screwing up your long-term goals.

Think about it this way. IF investing was as easy as just buying a bunch of stuff and sitting on it, then why are so many Americans dependent on Social Security for retirement? Via Jared Dillian:

• 19.7% of retirees get 100% of their income from Social Security.


• A full third (33.4%) depend on it for 90% of their income.


• And 61.1% get at least half their income from Social Security.

The federal government’s unfunded 75-year liability for Social Security and Medicare combined is $46.7 trillion.

Are you absolutely sure you want to rely on the Government for your retirement?

Think about it the next time someone tells you to just “buy and hold.”

Senate Passes 2018 Budget Paving Way For $1.5 Trillion In Tax Cuts, Sending Yields, Dollar Sharply Higher

Senate republicans took a major, if relatively easy, step toward passing Trump"s tax plan on Thursday night with the critical passage of a budget blueprint that would protect a $1.5 trillion tax cut from a Democratic filibuster. Senators narrowly voted 51-49 to pass the fiscal year 2018 budget after a several hour-long marathon on the Senate floor. The budget resolution could also pave the way for opening up the Arctic National Wildlife Refuge in Alaska to oil exploration by ensuring that drilling legislation can pass with only Republican votes according to the NYT.

With a 52-seat majority, Mitch McConnell had a narrow path to getting the 50 votes needed to clear the budget through the upper chamber. But GOP leadership caught a break this week when Sen. John McCain, a holdout over defense spending, announced he would vote yes, and Sen. Thad Cochran, recovering from health issues, returned early to Washington.

The budget’s passage could keep Republicans on track to pass a tax package late this year or early in 2018. That said, there are still plenty of possible complications, not least of all bickering within the GOP over the final shape of the tax package - where the fate of state and local tax exemptions has still to be decided - as the following Goldman flowchart shows: the steps that were successfully passed tonight are shown in green.

The House could pick up the Senate-passed budget as early as next week and give final approval to parliamentary language protecting the Republicans’ coveted tax effort. If House Republicans instead insist on negotiating a compromise that melds the Senate and House budget plans, tax legislation could be delayed.

“Passing this budget is critical to getting tax reform done, so we can strengthen our economy after years of stagnation under the previous administration,” said Senate Majority Leader Mitch McConnell (R-Ky.).

The Senate gave its approval to the budget blueprint on Thursday night after considering a flurry of amendments, a tedious process that gives the minority party an opportunity to force the majority to endure politically difficult votes. One Democratic amendment that was rejected sought to stop tax cuts from going to the top 1 percent; another would have restored cuts to Medicare.

The Senate approved the budget after the previously discussed so-called vote-a-rama, a legislative whirlwind in which amendments are considered one after another

Giving tonight events an aura of fatalistic determinism, Senator Lindsey Graham, and a member of the Budget Committee, said "this is the last, best chance we will have to cut taxes,” and warned that the consequences would be ruinous if the party failed. “That will be the end of us as a party,” he said, “because if you’re a Republican and you don’t want to simplify the tax code and cut taxes, what good are you to anybody?”

Where things get laughable is when one considers the context of what just happened: In Congress, the annual budget resolution provides an outline of federal spending and revenues. The Senate’s blueprint, for the 2018 fiscal year that began Oct. 1, claims to achieve a balanced budget within a decade, assuming greater economic growth and using an accounting method that excludes Social Security. In order to erase projected deficits, it calls for trillions of dollars in spending cuts over the coming decade.But the cuts exist only on paper, without legislation to achieve them.

And as the GOP predicts that by 2028 US government spending will equal revenues, here is what will really happen:

 

Meanwhile, as Republicans played with excel"s "goalseek" function, Democrats sounded the alarm, warning that the aspirational cuts in the budget plan called for slicing more than $1 trillion from Medicaid and about $470 billion from Medicare over a decade. Unfortunately for Democrats, they have exactly zero say in the matter: Though Democrats have pleaded to have more say in the tax overhaul, parliamentary language in the budget resolution would allow Republicans to pass a tax bill without any cooperation from the minority party.

“Passing this budget is not a requirement for passing tax reform,” said Senator Gary Peters, Democrat of Michigan. “Passing this budget is only a requirement to pass a tax bill with as few votes as possible, without input or buy-in from members of the minority.”

For Republicans, the budget debate provided a moment to showcase their main goal in the coming months, which according to the NYT is approving an overhaul of the tax code for the first time in decades, which they hope will lead to greater economic growth. But before they can move ahead with a tax bill, the House and Senate need to agree on the same budget resolution. The House approved its budget resolution, which had long been stalled, on Oct. 5. The House budget also lays the groundwork for a tax bill, but, unlike the Senate’s approach, it calls for the legislation to not add to the deficit.

The House budget resolution also seeks more concrete action when it comes to cutting spending, instructing committees to come up with legislation that would produce at least about $200 billion in savings.

However, according to The Hill, a House GOP source says the amendment seems sufficient to avoid a conference committee between the two chambers, and allow the House to simply pass the Senate resolution.

Ultimately, however, the only reason why the vote passed so easily is because as the Hill explained, it doesn"t matter, and was merely viewed as a mere vehicle for passing tax reform

"This is the biggest hoax cast upon the American people ever that this budget process even exists. The only thing about this that matters is in preparation for tax reform," said Sen. Bob Corker (R-Tenn.), who voted for the budget.  Corker noted bluntly that he believes the budget doesn"t have a real-world impact and if he was chairman of the Budget Committee he would disband it. When a staffer told him he was about to miss an amendment vote, he shot back: "yeah, on a vote that doesn"t matter."

McCain, explaining why he would support the budget, added: “At the end of the day, we all know that the Senate budget resolution will not impact final appropriations.”

Then again, all of these nuances were lost on the shotgun headline scanning algos, which read that Trump"s tax plan is one step closer to passage and sent both the USDJPY...

... and 10Y yields surging...

 

With gold lower...

 

With Dow Futs up over 100 points...

... and the Fed cursing their fate, because as Dudley explained yesterday, the last thing the feed needs right now as it is desperate to avoid tightening fast, is a burst of wage inflation, something which Trump"s tax proposal, if it passes, will promptly lead to, crushing the Fed"s carefully laid plan to take years and years in unwinding it balance sheet and rising rates.