Daniel Nevins: Economics for Independent Thinkers

This report was originally published by Adam Taggart at PeakProsperity.com

Economists are supposed to monitor and analyze the economy, warn us if risks are getting out of hand, and advise us on how to make things runs more effectively — right?

Well, even though that’s what most people expect from economists, it’s not at all how they see their role, warns CFA and and behavioral economist Daniel Nevins.

Economists, he cautions, are modelers. They pursue academic lines of thought in order to make their models more perfect. They live in a universe of equations and presumptions about equilibrium states and other chimerical mathematical perfections that don’t exist in real life.

In short, they are the wrong people to advise us, Nevins claims, as they have no clue how the imperfect world we live in actually works.

In his book Economics For Independent Thinkers, he argues that we need a new, more accurate and useful way of studying the economy:

However far you go back, you can find economists who had a more realistic approach to how humans actually behave, than the way that mainstreamers assume they behave in the models that the Fed uses to pick winners and losers.

You mentioned credit cycles, business environment, and behavioral economics. What I’ve done is to say, “Okay. We know that the modeling approach, the systems of equations approach doesn’t work. But instead of starting completely from scratch, what can we find in the economics literature that is maybe more realistic?”

And the interesting thing is that if you look at the work that was done, the state of the profession before the 1930s, before Keynesianism took hold, you can find a lot of work that was quite sensible.

I think where that points is towards this notion that when we think about economic volatility, there are really three things that we need to bring together:

One is the behavioral side. And we have to be realistic about the way that people really process information, the way that they truly make decisions.

The second has to do with the way businesses operate and all the challenges that businesses face to gain and retain profitability. That’s something that economists were intently focused on before Keynesianism and then it became kind of sidelined afterwards because all of these models assumed that businesses didn’t have any challenges.

If you pick apart the standard models that the Fed uses that are taught in PhD programs, they assume that business are always profitable, they always sell all of their output instantaneously, and they know exactly what their customers want, and businesses don’t struggle. So, that’s another thing we need to correct that you can find a lot of useful research if you know where to look (before Keynesianism and at the nontraditional schools that have continued in the older approaches).

And then the third thing is the credit side where mainstream economics is just so off-target, especially in their models that exclude any role for banks. Effectively, mainstream economists have made assumptions about the way money works and the way banks work that just flat do not match how they actually work in real life. That’s something that’s hugely critical to understanding economic volatility and understanding financial crises. But even regular business cycles have a lot to do with the ebbs and flows of bank lending. And banks just aren’t included in standard macroeconomic models(…)

Until you understand that the economic profession is really not doing anything like what I would say they should be doing—studying these things that go wrong, the recessions and depressions and crises—you might not realize that we shouldn’t really be relying on mainstream economists to tell us how policies should be crafted, to tell us what risks might be out there. We need a different approach.

Click the play button below to listen to Chris’ interview with Daniel Nevins (46m:19s).

For the transcript of this recording, please click here.

A Frustrated David Einhorn Asks "Will The Market Cycle Never Turn?"

Just days after Third Point"s Dan Loeb took a victory lap in his latest letter to investors, boasting a 14.5% YTD performance, outperforming the S&P and virtually all of his peers, a decidedly more downcast letter was released today by Greenlight"s David Einhorn, who also had a good quarter, generating 6.2% in Q3, which brought his YTD return to 3.3% after a subpar first half. Yet despite the solid Q3 performance, Einhorn admits that "the market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy. The knee-jerk instinct is to respond that when a proven strategy is so exceedingly out of favor that its viability is questioned, the cycle must be about to turn around. Unfortunately, we lack such clarity. After years of running into the wind, we are left with no sense stronger than, “it will turn when it turns.”

Such an open-ended answer, however, is a problem for a fund which famously opened a basket of "internet shorts" several years prior, and which have continued to rip ever higher, detracting from Greenlight"s overall performance.

This, in turn, has prompted Einhorn to consider the unthinkable alternative: "Might the cycle never turn?" In other words, is the market now permanently broken.

Einhorn goes on to explain that his strategy "relies on the assumption that the equity value of a company equals the market’s best assessment of the current and future profits discounted at the company’s cost of capital. Our ability to outperform often comes from our skill in finding opportunities where the market has misestimated current or future profitability or miscalculated the cost of capital by over- or underestimating the risks."

It is here than an unexpectedly exasperated Einhorn emerges:

Given the performance of certain stocks, we wonder if the market has adopted an alternative paradigm for calculating equity value. What if equity value has nothing to do with current or future profits and instead is derived from a company’s ability to be disruptive, to provide social change, or to advance new beneficial technologies, even when doing so results in current and future economic loss? It’s clear that a number of companies provide products and services to customers that come with a subsidy from equity holders. And yet, on a mark-to-market basis, the equity holders are doing just fine.

Ah yes, the Fed-funded "deflation trade" which lowers prices for goods and services courtesy of ravenous investors who will throw money at any "growth" idea, without considerations for return or profit, because - well - more such investors will emerge tomorrow.  After all, in this day and age of ZIRP, what else will they do with their money.

Here Einhorn took aim at his favorite "bubble" shorts: Amazon, Tesla and Netflix. This is what he said:

When we consider the business performance of our three most well-known “bubble” shorts, we wonder if this alternative paradigm is in play. Last quarter, we noted Amazon.com’s (AMZN) earnings estimates had fallen over the prior few quarters. This quarter, AMZN revealed a much lower level of long-term structural profitability, causing consensus estimates for the next five years to drop by 40%, 22%, 18%, 14% and 8%, respectively. Ordinarily, stocks trading at nosebleed multiples fall sharply when such a dramatic reassessment happens. Instead, AMZN fell less than 1% during the quarter. Our view is that just because AMZN can disrupt somebody else’s profit stream, it doesn’t mean that AMZN earns that profit stream. For the moment, the market doesn’t agree. Perhaps, simply being disruptive is enough.

 

Tesla (TSLA) had an awful quarter both in its current results and future prospects. In response, its shares fell almost 6%. We believe it deserved much worse. So much went wrong for TSLA in the quarter that it is hard to only provide a brief summary. The main near-term problems are poor demand for its legacy vehicles and manufacturing challenges for the new Model 3. Notably, TSLA dramatically reduced its gross margin assumption for the September quarter and publicly blamed ramp-up costs for the new Model 3 sedan. More quietly, the company used the lower gross margin hurdle to offer incentives and to lower the cost of options on the Model S and Model X vehicles, and even offered significant markdowns on showroom models. Given the depth of the price cuts, we were surprised that demand for the Model S and Model X only improved modestly.

 

Meanwhile, it is becoming clear that scale manufacturing is actually a skill. While the CEO makes bold claims about TSLA’s superior prowess, continued production shortfalls, defects and product recalls disprove him. TSLA faces competition from established OEMs that have decades of scale manufacturing experience. Some of TSLA’s presumed market lead in areas like autonomous driving may more likely reflect TSLA’s willingness to put inadequately  tested and dangerous products on the road rather than a true technological advantage.

 

Finally, there is Netflix (NFLX), where the quarterly results beat expectations and the shares advanced 21%. Competition is heating up and media companies such as Disney will be removing their content from NFLX to compete directly (bulls used to believe that Disney would pull a Time Warner/AOL and pay-up for the highly promoted but profitless business). NFLX continues to accelerate its cash burn as it desperately tries to compensate for its inability to rely longer-term on licensed content. On the second quarter conference call, the CEO stated, “In some senses the negative free cash flow will be an indicator of enormous success.” To us, all it indicates is that NFLX is capable of dramatically changing the economics of stand-up comedy in favor of the comedians. Perhaps, there really is a new paradigm for valuing equities and the joke is on us. Time will tell.

Einhorn also highlights the biggest winners and losers in the quarter including CONSOL Energy (CNX), General Motors (GM) and Uniper (Germany: UN01) which were the largest contributors, while Caterpillar (CAT) short and Mylan (MYL) were detractors.

Some more details: Greenlight added long positions in Hewlett Packard Enterprise, Micron and Tempur Sealy; exited a short position on Best Buy and a long position on PVH. The fund"s largest disclosed long positions at quarter end were unchanged from the end of 2Q: AerCap, Bayer, Consol Energy, General Motors and gold. The parternships had an average exposure of 118% long and 73% short.

The full letter is below:

3 Steps To Making Money From Backyard Chickens

Image source: Pixabay.com

When it comes to building a small business around your chickens, there are a lot of options: different breeds, different feeds, different markets. Some initial planning will help you better navigate the marketplace and reach your goals.

1. Choose the right product.

When starting your flock, you’ll need to choose which type of breed best suits your business plans. If you see a need for organic free-range chicken in your area, then you will want to do some research and decide which breed is desirable for providing meat. If you are selling eggs, you will want to choose between the breeds that lay white, green, blue, speckled, dark chocolate, light brown and pink eggs. The colored eggs can bring a slightly higher price at the farmer’s market, but they would not be the best choice if you are selling to restaurants, which typically choose volume and value over eggshell color.

If you want to sell chicks or laying hens, then consider choosing a breed that isn’t commonly offered in your area, or one that is in high demand. You could ask in your local feed store, or anywhere chicks are being sold, to find out which breeds have commonly sold the most. Breeds differ in value. Although they offer different, and in some cases very unique products, the prices will vary immensely. A general breed may cost only $3 for a chick, while some of the desirable breeds can cost upwards of $10 to $30 per chick. Those costs need to be accounted for when choosing a breed to raise. Some of the special breeds require an up-front investment, but have potential to return that investment with higher sale prices.

You also may find that you want to raise multiple breeds in order to feed your family while also having unique products to sell. Understanding what you want to sell will help you start to plan the direction for your flock.

2. Choose the right flock size.

After choosing what you want to raise and sell, you will need to determine how large of a flock to have. This is based on the needs of your family as well as how much you plan to sell. Careful planning can help you alleviate the cost of overproduction while keeping your flock fresh and rotated. We would all like to get rich off our farms, but it’s important to choose a flock size that actually works for you and your family. How many dozen eggs do you want to sell per week? How many chicks do you plan to start selling in your area or to buyers online? How many pounds of meat will you have ready to offer customers at any one time?

Image source: Pixabay.com

Determine how much meat or the number of eggs you want for your own family on a consistent basis. Anything additional is what you can sell. Consider how many people are in your family and how many eggs or how much meat you want per day for each one. Then determine how many birds you’ll need in order to meet that need. Each hen lays up to one egg per day, which may translate into one to two hens per family member, depending on how many eggs each person consumes.

Diatomaceous Earth: The All-Natural Livestock De-Wormer!

As daylight length changes with the seasons, the hens’ laying cycles will change slightly. In winter, when there is less daylight each day, they will lay fewer eggs. When they’re molting, then will not lay eggs. For these reasons, as well as unexpected accidents or health problems, you may want to plan on having several additional birds to help feed your family when egg cycles are different. You also can use these variables to determine how many hens you will need to produce the quantity of eggs you want to take to market or supply to local businesses. How many eggs you will sell each day or each week determines how many dozen hens you want to keep.

As your hens age, they will decrease egg laying, and will eventually stop completely. For an efficient, profitable farm, you will want to swap out your hens every two years or so, as it ensures consistent egg production. This is the point at which you could slaughter for meat. As you keep your hens fresh, it will boost productivity and ensure egg laying is at its highest capacity.

If you are raising chicks, you will need to determine if you want to rely on your hens going broody and sitting on small batches of eggs, or if you will need to build or purchase an incubator for larger batches. The cost of an incubator will vary based on if you are purchasing new or used, or building your own. You already have the hens which can sit on the eggs, but you will be limited to the amount they can handle. If a small batch is all you are starting with, then it should be sufficient for you. But for large-scale production down the road, consider an incubator for more consistent results.

To really make money off your chickens, you will eventually need to expand to more than just a backyard flock – say, flocks of several hundred or more. With volume comes more efficient feeding and care and the opportunity to sell in bulk to certain types of customers. This may not be your starting place, but as you learn to manage your flock and develop new avenues for sales, your need for larger flocks will eventually grow.

3. Choose the right market.

As you are choosing the type of product and the volume you want to sell, also consider the avenues through which you will sell. Some of the options are obvious: farmer’s market, local grocery stores that may be open to selling your goods, online forums, local restaurants, Craigslist, local feed or farming stores, natural or bulk food stores, bakeries, or any other business that may have a need for fresh eggs or meat. You are not confined to selling at a farmer’s market, although that’s a great place to start. You can inquire at local restaurants and bakeries to find out how many eggs or pounds of meat they purchase and whether your free-range product would suit their needs. This will start to give you an idea of how many eggs or how much meat you could expect to sell to certain types of customers, as well as how much they typically pay for those items.

Some local feed or farming stores offer chicks for sale in the springtime. These may come from a large distributor, but they may be interested in offering your local chicks instead. If not, you can expand your reach through online forums, Craigslist and social media. Having unique breeds may help you reach people who want more than a general breed. Try chicken and breeder forums, breeder clubs, or even local 4-H groups where the members may be looking to purchase their next projects.

Many advertising options are inexpensive or free, and just take a little time. Don’t be afraid to step out and start relationships with local businesses which may be looking for quality products like yours. A free-range or organic, locally raised option is typically better than the distributed products they may currently be purchasing. Finding out how many eggs or how much meat they may purchase can also give insight as to the size of flock you’ll want to own.

Do you have any advice for making money from chicken farming? Share your ideas in the section below:

When Technology Becomes Religion And Science Becomes God

Are we in love with how smart we are?  In America today, there are technology companies that have a much larger “cult following” than any religious organization.  And there are millions upon millions of Americans that freely confess that they “believe in science”.  So what does this say about us?  Does it say that we have discarded ancient “superstitions” and instead have embraced logic and reason?  Sadly, in most cases the truth is that we have simply traded one form of religion for another.  Scientists and technology gurus have become our new high priests, and most of us blindly follow whatever they tell us.  But in the end, just like with so many religious organizations, it is all about the money.  Those with the money determine what the science is going to say, who the high priests are going to be, and what messages are conveyed to the public.  For example, once upon a time the big tobacco companies had armies of doctors and scientists that swore up and down that smoking cigarettes was not harmful.  In fact, many doctors and dentists in America once personally endorsed specific brands of cigarettes.  Of course millions of Americans were getting sick and dying, but this was dismissed as “anecdotal evidence”.  And over in Germany, “science” was once used to prove that the Germans were the master race.  We look back in horror now, but at the time the best “science” in the world was used as justification to promote some horrible untruths.  And of course the same thing is happening today.  We are told over and over that “the science is settled” regarding genetically-modified food, climate change and vaccine safety, and yet those of us that think for ourselves know that isn’t the case at all.  But if you do not believe in the “official story”, you don’t get to be part of the “scientific establishment”.  By definition, the only people that get to be “scientific experts” are the ones that embrace the “doctrine” of those that control the big corporations, that fund the research studies at the major universities and that own the big media outlets.  Everyone else is not permitted to be part of the discussion.

As I have written about previously, I spent eight years studying at public universities in the United States.  And over time, I got to see where most “scientific truths” come from these days.

Most of the time, the theories that people believe are so “scientific” were simply pulled out of thin air.  In other words, they were just the product of someone’s overactive imagination.  In recent decades, there have been countless examples of “existing science” being overturned and rewritten when more information and evidence become available.  This is because the “existing science” did not have any foundation to begin with.

And yet we continue to make the same mistake today.  Instead of calling them “theories”, which is what they should do, scientists all over the world are so eager to make bold pronouncements about the wonderful new “discoveries” that they have made.  These bold pronouncements are then repeated over and over and over again until they become “facts”.  But of course they are not facts at all.

For instance, at one time it was a “scientific fact” that it was perfectly safe to smoke cigarettes.  The following comes from an article by Tony Cartalucci…

It wasn’t long ago when big-tobacco had armies of “scientists” citing the latest “studies” confirming the health benefits and safety of smoking. Of course these were paid liars, not scientists, even if many of them had PhDs. And it was lies they were telling, even if mixed with shades of science.

In case you are too young to remember those days, Cartalucci included the following compilation of old tobacco ads in his article…

Even worse is how the Nazi used science.

To them, the “facts” of Darwinism proved that they were the master race…

Hiding behind science is nothing new. Darwinists hid behind it to prop up their racism, which in fact inspired the Nazis to hide behind it to scientifically prove they were the “master race.” The Nazis, in fact, loved science, and used it with horrible precision.

At any point in history, has “science” ever had all the answers?

Of course not.

And without a doubt, someday people will look back and mock all of us for how stupid we were.

But we never stop to consider that.  Instead, we are all just so proud of ourselves and our accomplishments.

In fact, as I mentioned above, there are a lot of people out there who virtually worship technology these days.  Just consider the following excerpt from a Los Angeles Times article entitled “How Steve Jobs and Apple turned technology into a religion“…

Decades after Apple’s founding, we’ve grown used to referring to lovers of the company’s products as a “cult.” The devotion of customers to Apple products has long been the envy of competitors for its fanatical fervor.

It turns out that the religious intensity with which people follow the company is not entirely by accident. In a new book, “Appletopia,” author Brett Robinson examines the way that Steve Jobs drew on religious metaphors and iconography to elevate his products specifically, and technology more generally, into a kind of religion.

“The creative rhetoric around Apple’s technology has favored religious metaphors,” Robinson said in an interview. “Some of it is conscious on Apple’s part. Some of it is unconscious.”

But certainly this is less strange than what a lot of religious people do, right?

After all, there are millions upon millions of people out there that do some really strange things in the name of religion.  For example, on the other side of the globe 400 men cut off their own testicles in an attempt to get closer to God.

Many would say that our worship of science and technology is evidence that we have evolved beyond our ancestors.  In fact, there are some “scientific minds” that are now proclaiming that science will one day eliminate belief in God altogether.  For example, the following comes from an article entitled “Will Science Someday Rule Out the Possibility of God?“…

Over the past few centuries, science can be said to have gradually chipped away at the traditional grounds for believing in God. Much of what once seemed mysterious — the existence of humanity, the life-bearing perfection of Earth, the workings of the universe — can now be explained by biology, astronomy, physics and other domains of science.

Although cosmic mysteries remain, Sean Carroll, a theoretical cosmologist at the California Institute of Technology, says there’s good reason to think science will ultimately arrive at a complete understanding of the universe that leaves no grounds for God whatsoever.

Carroll argues that God’s sphere of influence has shrunk drastically in modern times, as physics and cosmology have expanded in their ability to explain the origin and evolution of the universe. “As we learn more about the universe, there’s less and less need to look outside it for help,” he told Life’s Little Mysteries.

Personally, I find this laughable.

Darwinists have been trying to move God out of the picture for decades, but they are fighting a losing battle.  Over time, more and more evidence has come out that has shot the theory of evolution full of holes.  For much more on this, please see my previous article entitled “44 Reasons Why Evolution Is Just A Fairy Tale For Adults“.

And as far as whether or not God exists, this is something that I have been investigating for many, many years.  My legal training has taught me to think critically and to allow the evidence to speak for itself.  Over time, I came to learn that there is a vast mountain of evidence that leads to one inescapable conclusion.  In the end, the overwhelming conclusion that I reached was that God is very, very real.  You can find a few of my thoughts in an article entitled “Did You Know?”

So what do you think?

Does our society worship technology?

Has “science” become a god in America?

Please feel free to add to the discussion by posting a comment below…

In A Free Market, No Profit Is "Excessive"

Authored by Ludwig von Mises via The Mises Institute,

Profits are never normal. They appear only where there is a maladjustment, a divergence between actual production and production as it should be in order to utilize the available material and mental resources for the best possible satisfaction of the wishes of the public. They are the prize of those who remove this maladjustment; they disappear as soon as the maladjustment is entirely removed. In the imaginary construction of an evenly rotating economy there are no profits. There the sum of the prices of the complementary factors of production, due allowance being made for time preference, coincides with the price of the product.

The greater the preceding maladjustments, the greater the profit earned by their removal. Maladjustments may sometimes be called excessive. But it is inappropriate to apply the epithet “excessive” to profits.

People arrive at the idea of excessive profits by confronting the profit earned with the capital employed in the enterprise and measuring the profit as a percentage of the capital. This method is suggested by the customary procedure applied in partnerships and corporations for the assignment of quotas of the total profit to the individual partners and shareholders. These men have contributed to a different extent to the realization of the project and share in the profits and losses according to the extent of their contribution.

But it is not the capital employed that creates profits and losses. Capital does not “beget profit” as Marx thought. The capital goods as such are dead things that in themselves do not accomplish anything. If they are utilized according to a good idea, profit results. If they are utilized according to a mistaken idea, no profit or losses result. It is the entrepreneurial decision that creates either profit or loss. It is mental acts, the mind of the entrepreneur, from which profits ultimately originate. Profit is a product of the mind, of success in anticipating the future state of the market. It is a spiritual and intellectual phenomenon.

The absurdity of condemning any profits as excessive can easily be shown. An enterprise with a capital of the amount c produced a definite quantity of p which it sold at prices that brought a surplus of proceeds over costs of s and consequently a profit of n per cent. If the entrepreneur had been less capable, he would have needed a capital of 2c for the production of the same quantity of p. For the sake of argument we may even neglect the fact that this would have necessarily increased costs of production as it would have doubled the interest on the capital employed, and we may assume that s would have remained unchanged. But at any rate s would have been confronted with 2c instead of c and thus the profit would have been only n/2 per cent of the capital employed. The “excessive” profit would have been reduced to a “fair” level. Why? Because the entrepreneur was less efficient and because his lack of efficiency deprived his fellow-men of all the advantages they could have got if an amount c of capital goods had been left available for the production of other merchandise.

In branding profits as excessive and penalizing the efficient entrepreneurs by discriminatory taxation, people are injuring themselves. Taxing profits is tantamount to taxing success in best serving the public. The only goal of all production activities is to employ the factors of production in such a way that they render the highest possible output. The smaller the input required for the production of an article becomes, the more of the scarce factors of production is left for the production of other articles. But the better an entrepreneur succeeds in this regard, the more is he vilified and the more is he soaked by taxation. Increasing costs per unit of output, that is, waste, is praised as a virtue.

The most amazing manifestation of this complete failure to grasp the task of production and the nature and functions of profit and loss is shown in the popular superstition that profit is an addendum to the costs of production, the height of which depends uniquely on the discretion of the seller. It is this belief that guides governments in controlling prices. It is the same belief that has prompted many governments to make arrangements with their contractors according to which the price to be paid for an article delivered is to equal costs of production expended by the seller increased by a definite percentage. The effect was that the purveyor got a surplus the higher, the less he succeeded in avoiding superfluous costs. Contracts of this type enhanced considerably the sums the United States had to expend in the two world wars. But the bureaucrats, first of all the professors of economics who served in the various war agencies, boasted of their clever handling of the matter.

All people, entrepreneurs as well as non-entrepreneurs, look askance upon any profits earned by other people. Envy is a common weakness of men. People are loath to acknowledge the fact that they themselves could have earned profits if they had displayed the same foresight and judgment the successful businessman did. Their resentment is the more violent the more they are subconsciously aware of this fact.

There would not be any profits but for the eagerness of the public to acquire the merchandise offered for sale by the successful entrepreneur. But the same people who scramble for these articles vilify the businessman and call his profit ill got.

The semantic expression of this enviousness is the distinction between earned and unearned income. It permeates the textbooks, the language of the laws and administrative procedure. Thus, for instance, the official Form 201 for the New York state income tax return calls “earnings” only the compensation received by employees and, by implication, all other income, also that resulting from the exercise of a profession, unearned income. Such is the terminology of a state whose governor is a Republican and whose state assembly has a Republican majority.

Public opinion condones profits only as far as they do not exceed the salary paid to an employee. All surplus is rejected as unfair. The objective of taxation is, under the ability-to-pay principle, to confiscate this surplus.

Now one of the main functions of profits is to shift the control of capital to those who know how to employ it in the best possible way for the satisfaction of the public. The more profits a man earns, the greater his wealth consequently becomes, the more influential does he become in the conduct of business affairs. Profit and loss are the instruments by means of which the consumers pass the direction of production activities into the hands of those who are best fit to serve them. Whatever is undertaken to curtail or to confiscate profits impairs this function. The result of such measures is to loosen the grip the consumers hold over the course of production. The economic machine becomes, from the point of view of the people, less efficient and less responsive.

The jealousy of the common man looks upon the profits of the entrepreneurs as if they were totally used for consumption. A part of them is, of course, consumed. But only those entrepreneurs attain wealth and influence in the realm of business who consume merely a fraction of their proceeds and plough back the much greater part into their enterprises. What makes small business develop into big business is not spending, but saving and capital accumulation.

No Hope for Humanity

By EconMatters

We discuss the real problem facing global growth right now, the massive government debt and credit bubble in this video. Republicans and Democrats keep Spending and Borrowing like there is No Tomorrow.

The global financial numbers don`t make sense, governments and central banks cannot add to their balance sheets in an infinite manner, and expect global growth to buck the current downtrend. Moreover, who is left to buy now, where is the incremental buyer in the financial system? We have a Global Financial Ponzi Scheme, the numbers just don`t add up, financial gimmicks with no basic structural finance soundness underneath, are a house made of cards and doomed to crash, this is where we are at currently in global finance. The Global Financial System is the Real Big Short, it is the Biggest Short we have ever seen in the history of Financial Markets!

We have met the endgame, the can has been kicked as far down the road, the inevitable rubber meets the road reality day is here, now pay up. You cannot lower interest rates any lower, you cannot borrow any more, you cannot add any more to central bank`s balance sheets, governments cannot borrow anymore money through unsound deficit financing. Now rates are going up, inflation is going up, as there has been too much money printing, currency devaluation, and central bank inspired fiat capital created chasing too few real goods in the global economy. And Moreover, you cannot "Trade War" your way to prosperity through these populous movements which are a reflection of the reality on the ground of the Global Zero Sum Game of a few Winners and a lot of Net Losers. The reality is that at this point structural changes need to be made that respects finance principles and basic capitalistic models.

Since politicians and central bankers are too weak and incompetent to do anything but kick the can down the road creating further debt, credit and asset bubble "Days or Reckoning" the only true Reality Check and form of discipline comes via a Global Recession and Financial Market Crash. This is the Forced Reset Option that occurred in the second half of 2007!

Who is going to regulate Central Banks and Governments because they have done far more harm to the stability of capitalism and financial markets than any investment bank, hedge fund, or financial institution in the history of financial markets. Until we have systemic changes in many areas, and no I don`t think Donald Trump is the savior, just like President Obama wasn`t, we are going to struggle mightily as a society both locally and globally. At this point, there is still no light at the end of the tunnel, There is No Hope for Humanity!

This basic point, and it is a finance and capitalistic point is that if you cannot afford to provide a good job and future for your children, then you don`t have kids, period. Until this basic economic fact is adhered to, the entire financial system is in trouble, because the numbers just don`t add up anymore. And advances in technology are only going to make this finance law of nature worse, and providing a basic income for a bunch of "idle population" because there are no jobs for them, is just more unsound Finance Can Kicking.

The basic laws of Finance and Capitalism have to be respected, the finance numbers have to add up or make sense. If the world continues to create more people than there are good jobs, the finance equation continues to break down, and humanity continues down its current path of systemic breakdown. We are basically still pretty stupid animals, and unless we "smarten up" considerably there is No Hope for Humanity, and we are in for a lot of "Finger Getting Burned on the Stove Learning Events" and "Finance Principle Disciplining" as a recurring theme for Humanity. The question is will Humans ever "Smarten Up" and Learn from these past mistakes?

And by No Hope, I mean from the Global Zero Sum Game of Winners and Losers, a few Global Winners and most of the World as Net Losers depending how exceptionally well they are able to navigate the multitude of financial, economic and politic landmines of incompetent structural policies by governments, central banks and religious leaders around the world.

© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle