Endangered Recovery

As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.

 

Too many oil barrels are filling up again.

Photo credit: Kay Nietfeld / DPA / Corbis

 

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The Wrong Approach

This question is no longer moot. As the world moves inexorably towards the use of metallic money, interest on gold and silver will return with it. This raises an important question.

Which interest rate will be higher?

 

It’s instructive to explore a wrong, but popular, view. I call it the purchasing power paradigm. In this view, the value of money — its purchasing power —is 1/P (where P is the price level). Inflation is the rate of decline of purchasing power.

 

American economist Irving Fisher, of “permanent plateau” fame. He inter alia came up with the “quantity theory of money” and the infamous “equation of exchange” (as Hayek once remarked, every student of economics should know about these, and then immediately forget about them again; we know exactly what he meant to convey…).  Fisher was quite the busybody. Like so many economists of his time, he became fascinated by the possibility to collate statistics and “measure” things in the economy. We have to thank him for index numbers like CPI as well, and it is probably fair to say that Fisher is the bedrock on which much of US mainstream economics rests (only things he was right about are rejected). In the early 20th century the erroneous idea began to take hold that economics should become more akin to the natural sciences. The data of economic history (i.e., statistics), would so the speak provide the numerical wherewithal to put some flesh on equilibrium equations previously only used as theoretical constructs which were understood not to apply to the real world of constant change. Why did economists so readily fall for this methodological lunacy? It was yet another momentous error – the growing belief that the economy had to be steered, or somehow centrally planned by “wise men”. No doubt tempting for those imagining themselves to be among the planners, and a catastrophe for the rest of us. [PT]

 

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Seeming Contradiction

CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes. But there is a serious side to it, too. Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.

 

Is it real? Is it real? Is it real? Above you can see what the problem with reality is, or potentially is, in a 6-phase research undertaking that has landed its protagonist in a very disagreeable situation (a corner of reality best avoided, so to speak). 1. he learns that something is amiss. 2. he has to measure reality, otherwise it doesn’t exist! He does so, and 3. strange people show up at his doorstep, giving him ominous messages. 4. At least reality is now real! Then he  learns about a philosopher, who asserts that while it may be real now, in a sense, it is nevertheless a computer simulation. Oh well, what does he know? Unfortunately, a bunch of serious-sounding German physicists calculate that he actually appears to be right. 5. By now our protagonist will believe anything, so when he hears about Dr. Schreber’s efforts to keep the universe from dissolving/imploding by thinking about it all the time, he is no longer even surprised. 6. He enters the Tearoom of Despair –  a “world of horror, futility and endless buttered scones” – click to enlarge.

 

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Frexit Threat Macronized

The dollar moved strongly, and is now over 25mg gold and 1.9g silver. This was a holiday-shortened week, due to the Early May bank holiday in the UK.

The lateral entrant wakes up, preparing to march on, avenge the disinherited and let loose with fresh rounds of heavy philosophizing… we can’t wait! [PT]

 

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Licking the Log

American workers, as a whole, are facing a disagreeable disorder.  Their debt burdens are increasing.  Their incomes are stagnating.

 

There are many reasons why.  In truth, it would take several large volumes to chronicle all of them.  But when you get down to the ‘lick log’ of it all, the disorder stems from decades of technocratic intervention that have stripped away any semblance of a free functioning, self-correcting economy.

 

Happy workers from the distant past…

 

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The Guessers Convocation

On Wednesday the socialist central planning agency that has bedeviled the market economy for more than a century held one of its regular meetings.  Thereafter it informed us about its reading of the bird entrails via statement (one could call this a verbose form of groping in the dark).

 

Modern economic forecasting rituals.

 

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Fixation on the Consumer Price Index

For most economists the key factor that sets the foundation for healthy economic fundamentals is a stable price level as depicted by the consumer price index.

According to this way of thinking, a stable price level doesn’t obscure the visibility of the relative changes in the prices of goods and services, and enables businesses to see clearly market signals that are conveyed by the relative changes in the prices of goods and services.

 

Central planners at work. It looks stable, doesn’t it?

 

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Jayant on Emerging Markets, Precious Metals and Mining Companies

Maurice Jackson of Proven & Probable has once again interviewed one of our friends, namely Jayant Bhandari, a frequent and highly valued contributor to Acting Man.  Jayant is probably best known to our readers for his strong criticism of the economic and nationalist policies implemented by prime minister Narendra Modi in India since he decreed the demonetization of the bulk of the cash currency circulating in the country (see his most recent article here).

 

Jayant Bhandari speaking at the 2016 Capitalism and Morality seminar.

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An Old Seasonal Truism

Most people are probably aware of the saying “sell in May and go away”. This popular seasonal Wall Street truism implies that the market’s performance is far worse in the six summer months than in the six winter months.

Numerous studies have been undertaken particularly with respect to US stock markets, which confirm the  relative weakness of the stock market in the summer months.

 

May has a bad reputation… rightly so, as it turns out.

 

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No Shouts of Joy from Kim Jong-Un

On April 28, Secretary of State Rex Tillerson told the U.N. that North Korea “must dismantle its nuclear missile programs” before the US “can even consider talks.”*

Sounds reasonable.

Why hasn’t the Kim Jong-Un regime responded with open arms and shouts of joy for this generous and fair-minded proposal from Uncle Sam?

 

One probably has to catch Kim on a good day. Here he is visiting North Korea’s new bread-roll auto-fac and evidently he’s enjoying himself. Presumably, he’s also feeling reasonable.

 

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Election Effect Debate

Last week, we talked about the effect of the French election on the gold and silver markets, and noted:

 

Of course, traders want to know how this will affect gold and silver. As we write this, we see that silver went down 30 cents before rallying back up to where it closed on Friday. Gold went down about $20, and then half way back up.

At this point, we are not sure if the metals are supposed to go up because more printing. Or go down because the euro constrains France from printing. Or silver at least should go up because the economy is going to be better with France remaining in the Eurozone. Or go down because the ongoing malaise will only progress as it has been. Or some other logic… and the price gyrations this evening show that traders don’t agree either.

 

French precious metals terrorizers sow discord among traders [PT]

Photo credit: Christian Hartmann / Reuters

 

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Seeing the Light

It has been said that “the definition of insanity is doing the same thing over and over again and expecting different results.”  No one quite knows who first uttered this remark; it has been attributed to Albert Einstein, Mark Twain, Benjamin Franklin, and has even been said to be an Ancient Chinese Proverb.  What is known is that this cliché has been repeated over and over again so often that its mere mention substantiates its own definition.

 

Several of the ladies and gentlemen above wanted to let us know that they’re merely eccentric,  and if they want to do things all over again and again and again, we should let them…

 

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