Recapitulation (Part XVI, the Last)

Since the announcement of demonetization of Indian currency on 8th November 2016, I have written a large number of articles. The issue is not so much that the Indian Prime Minister, Narendra Modi, is a tyrant and extremely simplistic in his thinking (which he is), or that demonetization and the new sales tax system were horribly ill-conceived (which they were). Time erases all tyrants from the map, and eventually from people’s memory.

 

According to the Global Slavery Index, an estimated 18 million Indians, equivalent to half the total population of Canada, are bonded, modern slaves.

Photo via patrika.com

 

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Back to the Happy Place Amid a Falling Dollar

The prices of the metals dropped this week, $24 and $0.38. This could be because the asset markets have returned to their happy, happy place where every day the stock market ticks up relentlessly.

 

Sometimes, happiness is fleeting… – click to enlarge.

 

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No-one Cares…

“No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week.  “You keep writing about it as if anyone gives a lick.”

We could tell he was just warming up.  So, we settled back into our chair and made ourselves comfortable.

 

The federal debtberg, which no-one cares about (yet). We have added the most recent bar manually, as the charts published by the Fed will only be updated at the end of the quarter. The devastation wrought by the recent hurricanes in Texas and Florida gave Congress a convenient excuse to postpone the debt ceiling debate by until at least December and to wave through a more than $300 billion jump in total federal debt without much ado. It is worth noting that while the growth of the debtberg has accelerated over time, growth in US economic output has concurrently slowed down rather dramatically. The main obstacle to maintaining this state of affairs is that it will sooner or later become mathematically impossible. Perhaps the fact that people don’t care reflects a decline in mathematical literacy? Per experience, throwing more money at public education won’t help – and soon it may no longer even be possible anyway. [PT] – click to enlarge.

 

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Anecdotal Flags are Waved

 

“If a shoeshine boy can predict where this market is going to go, then it’s no place for a man with a lot of money to lose.”

– Joseph Kennedy

 

It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if he wanted a few stock tips. Kennedy was amused and intrigued and encouraged him to go ahead. Bologna wrote a few ticker symbols on a piece of paper, and when Kennedy later that day compared the list to the ticker tape, he realized that all the stocks on Bologna’s list had made strong gains. This happened a few months before the crash of 1929.

 

Joseph Kennedy in 1914, at age 25 – at the time reportedly “the youngest ever bank president in the US”

Photo credit: John F. Kennedy Presidential Library and Museum, Boston.

 

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The Instability Problem

Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future.

In fact, it is not.

 

A tragedy… get the hankies out! :) [PT]

 

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Crypto-Statistics

In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.

 

Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to us like it could be the beginning of a higher degree correction, mainly because it so far proceeds with greater verve than previous corrections over the past year. Besides, the recent rally in this trading sardine seems rather stretched, and the term stretched by itself actually sounds  a bit inadequate as a descriptor. It needs an adverb… insanely might do. [PT] – click to enlarge.

 

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Improving the World, One Death at a Time

If anyone should have any questions about whether the United States of America is not the most aggressive, warlike, and terrorist nation on the face of the earth, its latest proposed action against the supposed rogue state of North Korea should allay any such doubts.

 

Throughout history, the problem with empires has always been the same: no matter how stable and invincible they appeared, eventually they ran into “imperial overstretch”. At some point, the exercise of maintaining an empire simply becomes unaffordable. The deterioration usually happens very gradually, so the ruling elites will always be reluctant to admit that something needs to change. Students of history always observe with astonishment that no-one seems to be learning from history, but one’s contemporaries are always driven by  the particular pressures and exigencies of the times they live in, and trapped in their own bubble of delusions. The first sign that things are beginning to go haywire is when the frequency with which the printing press is resorted to as a means to obtain funding increases noticeably (the functional equivalent of the surreptitious reduction of the precious metals content of coins used in the more distant past). [PT]

 

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Fundamental Developments

There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30.

Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.

 

Gold and silver prices in USD terms (as of last week Friday) – click to enlarge.

 

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Lasting Debt

“Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”

 

Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT]

Photo credit: Ashlee Rezin / Sun-Times

 

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Crazed Decision

The Los Angeles City Council’s recent, crazed decision* to replace Christopher Columbus Day with one celebrating “indigenous peoples” can be traced to the falsification of history and denigration of European man which began in earnest in the 1960s throughout the educational establishment (from grade school through the universities), book publishing, and the print and electronic media.

 

Christopher Columbus at the Court of the Catholic Monarchs (a painting by Juan Cordero).  Columbus was born in the Republic of Genoa in Italy, but made his exploration voyages (four in all) under the auspices of the Spanish crown. In 1492, just after Ferdinand and Isabella of Spain had reconquered the last Muslim outpost in Spain, they finally agreed to make a deal with Columbus and funded his voyages (the crown later partly reneged on the deal, particularly with respect to the degree of political power Columbus and his appointees were allowed to wield in the new territories –  descendants of Columbus were involved in litigation over the matter until 1790). Interestingly, no contemporary portrait of Columbus exists – we have actually no idea what he really looked like. All statues and paintings of the man were made posthumously. A previous attempt to rename Columbus Day ”Indigenous People Day” in Utah was voted down by the Utah Senate in 2016. [PT]

 

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Forking Incentives

A month ago, we wrote about the bitcoin fork. We described the fork:

 

Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!

 

BCH, son of Bitcoin, born by forking – down quite a bit from its highs, but still up 130% in the past month, and sporting the third-largest market cap in crypto-currency land. [PT] – click to enlarge.

 

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Introductory Remarks by PT

Below we present a recent article by the Mole discussing a number of technical statistics on the behavior of AAPL over time. Since the company has the largest market cap in the US stock market (~ USD 850 billion – a valuation that exceeds that of entire industries), it is the biggest component of capitalization-weighted big cap indexes and the ETFs based on them. It is also a component of the price-weighted DJIA. It is fair to say that the performance of AAPL is not unimportant for the broad market.

 

AAPL, weekly over the past 5 years. The stock has recently hit new highs. In a way this is  quite funny, as it happens just as the company enters maturity; its revenue and earnings growth rates are fated to enter a long term phase of decline from here on out no matter what – this is a mathematical certainty. Many of the darlings of the late 1990s tech bubble eventually faced a similar problem (in early 2000 we patiently explained to a fellow investor why Cisco could not possibly maintain an annual revenue growth rate of 50% for another decade, or even for another few years). This is beside the fact that the company hasn’t introduced any particularly successful innovative products since the iPhone, which remains its biggest revenue generator by far (the times when new generations of the iPhone offered genuine advances in terms of design and technological capability are but a distant memory as well; these days updated versions at best tend to offer a handful of tweaks). We don’t want to detract from the company’s undeniable entrepreneurial success and well-deserved reputation for quality, reliability and cool design. We merely question its current stock market valuation and the sense of timing of those buying the stock here and now. Admittedly, given the market’s effortless climb up the rungs of the greater fools ladder hitherto, recent buyers may well make a profit. We only know that someone will eventually end up holding the proverbial bag. A side note: the blue dotted lines on the chart serve to highlight a typical momentum divergence between RSI and price. The divergence is even more glaring on a daily chart. Sometimes  such divergences turn out not to mean anything, but more often than not they are a short term warning sign worth heeding – click to enlarge.

 

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