Thursday 8 December 2016

PEfer Madness

Are stocks overvalued?
Here is a metric that is accurate back 150 years - the Shiller Price/Earnings Ratio.
This looks at average prices divided by the previous ten years earnings.  It signals massive overbought when the ratio hits 26.6.  It is 26.7 now.  This is about the same level that it was at just before the market crash in 1929.

So, this week I have shown you that the velocity of money is at its slowest since the Great Depression, and that stocks are as overvalued as they were just before that depression started with a massive stock market crash in October, 1929.  The writing is on the wall people.
But what will be the trigger?
Trump was elected promising trade wars.  The markets went up on the hopes for more tax cuts and a happy consumer.
The Italian referendum was a bust.  The markets went up on the promise of even more ECB stimulus.
This was all good, but in the next 7 days we have a very significant happening.
On December 14, the US Fed will increase interest rates for the second time in 8 years. What if they surprise us and raise them by half a percent?
The last time the US Fed raised rates, markets moved lower by 11%.
Dump your stocks and buy Gold.


Image result for kittens

Tuesday 6 December 2016

It is going to fall....

We have seen two massive pull-backs in the DOW in the last 18 months...
May 11 '15, 18,272
Aug 31 '15, 16,102
That was a 11.8% drop in 3.5 months
Nov 2 '15, 17,910
Feb 8 '16, 15,973
That was a 10.8% drop in 2.5 months.
We have seen a 6.8% rise in the last five weeks...apparently because Donald Trump was elected.
Oct 31 '16, 17,888
Dec 5 '16, 19,211
There will be another drop.  

The last time a new president took office, the DOW dropped from about 8,500 on election day to 6,626 on Mar 2, 2009.  That was a 22% drop in 3.5 months.
And the time before that, when Bush became president, the DOW was at 10,434 when he was confirmed by the US Supreme Court.  On Sept 10, 2001, it was 9,065...a 13% drop in 10 months.
The year after a new president takes office has historically seen a significant pull back in the markets at some point. The only exception in the last 45 years was Clinton.


Monday 5 December 2016

Moving along.....slowly

Velocity of Money:
"The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy."
Roughly speaking, "Hot" economies drifting toward inflation have a high velocity of money as more money chases fewer goods.  "Cool" economies see the opposite as spending dries up no matter what prices are offered.
From the late 1950's to the end of the early 1990's recession, the velocity of money (M2 - cash plus savings and other deposits) moved within a fairly narrow band.  At its lowest it was 1.655 (1964), and at its highest it was 1.932 (1981).
Then in the 1990s the VOM started to grow markedly.  In 1992, it hit its highest level up to that time at 1.937 and it kept rising until it hit 2.206 in 1997.
It started to drop prior to the recession in 2001, dropping to 1.923 in 2003, then recovered to 2.034 in 2006.
Since that year it has been trending down steadily.  In 2011, it dropped below its 1964 post-WW2 low and hit 1.653.  It has continued to drop since so that today it is 1.438.
There is a direct correlation between recessions and the slowing down of the velocity of money.  The early 1980's recession; the early 1990's recession; the collapse of the tech bubble in 2001 and resulting recession; and the Great Recession of 2008 - 09 were ALL identified by significant drops in the VOM.
Here is a rather sobering graph....

velocity 1910-2010
The VOM is now at its lowest point EVER - even below the level it was at during the Great Depression.
To repeat - the VOM has NEVER been lower than it is now. It has plummeted since 2006, in spite of massive injection of stimulus into Western economies.  One could predict a recession from this...but the fact is that we have never seen a situation like this before, outside of the Great Depression.
But Wait! Wouldn't adding more dollars normally caused the VOM to fall as more dollars would normally slow all the other dollars in the economy down?
The whole point of stimulus is that adding more cash to the economy is supposed to cause those "more dollars" to chase relatively "fewer goods", therefore encouraging the creation of more goods to meet the demand of the more dollars.  The result should be a VOM that stays in a predictable range as economic activity picks up to match the stimulus that was added.
But the "more dollars" that have been added, especially since 2008, are not really chasing much more in the way of new goods, so the VOM is falling...OK, it is collapsing. In classical Keynesian economics, this isn't supposed to happen.
Would there be ANY real economic growth absent 1% interest rates, and massive government borrowing and spending?

What if we were in a depression, and no policy maker, bought-off media talking head, or politician would admit it?
Dump your stocks, take your profits, and buy Gold.



Saturday 19 November 2016

Eco Update

Hello readers!  Apologies for my lengthy absence - I have been writing a "Good, Bad and Ugly" for WW2 fighter planes, and it has become more involved than originally intended.


Today - the economy!
Here are some basic realities that will drive economic policy for the next decade.
1. The USA is close to broke.  As of right now the US Government owes $19.842 Trillion. The budget deficit is almost $600 Billion a year. They paid $432 Billion in interest on their debt last year, and they pay a remarkably low 2.216% interest on their debt. If interest rates on this debt rose even 1%, this would increase their interest payments to close to $650 Billion a year, which means they would have to come up with an extra $200 Billion just to pay interest on their debt. A 2% rise could force the USA into a debt death spiral requiring massive austerity and tax increases. They can't go there.
We know that rates are set to rise, and so, interest payments on the US debt will also rise, just as Trump promises to spend trillions on infrastructure. Janet Yellen advised Congress yesterday that she thinks the US Fed should let the economy run a bit. TRANSLATION....she thinks that the US Fed should let inflation run ahead of interest rates, which would slowly but surely reduce the real value of the US Government's debt. This would be good for US Government finances in the long run. It will also slowly but surely destroy the value of interest bearing assets such as bonds as it would mean a long-term negative interest rate. Retirees and others who rely on interest-bearing assets for their livelihood who have nowhere to turn, except to accept risks in the equity markets.
2. Business Profits are Declining.  Look at the chart below...

  
There is a direct correlation between rising profits and stock market appreciation. Declines like this almost always lead to significant market pull-backs.
3. US Productivity growth is close to stalled.


Productivity growth in the USA is just about tapped out. This is the underlying driver for economic growth. When it stalls, everything stalls. It stalled.
So what does this mean?
Negative interest rates are certain to drive the price of Gold as it is an asset that will hold its value no matter what. While negative rates should also spark a flight to equities, declining corporate profits are certain to hammer the US equity markets, at least in the short run.
So - short the markets and buy Gold.  Hold.  You will be rewarded.

Saturday 22 October 2016

World Trivia Night

Here is a useful site....

https://www.cafott.ca/en/events/world-trivia-night/wirecratscom5/ron-heale

I play trivia in support of a children aid foundation charity.  They do great work. Please consider supporting my team - the Wirecrats!

Thanks!
Image result for cats








Sunday 4 September 2016

Welcome to Denny's, circa 2019

It happened.

I attended an Ottawa Champions baseball game on September 2, 2016.  I arrived late.  I walked up to the ticket window.

I offered $15 - a $5 bill and a $10 bill.  The attendant looked at me, took the $10 bill, and gave me a ticket. I thought, "How odd. Tickets are $12 for adults, and he charged me $10.  Surely he was mistaken!"

Then I looked at the ticket prices.  It was $12 for adults, and $10 for seniors over 65 years of age.

OMG!!!!! He thought I was a senior!

For the record, I was 52 years, 8 months, 23 days old when I was first pegged as an oldster!

I used to joke that I will qualify for the Denny's seniors discount when I turn 55...in a little over 2 years.

I'm not joking now.
Image result for old man cartoon

Sunday 21 August 2016

Iraqi Malibu Taxi

It was 1981. Iraq needed taxis.  Saddam Hussein approached GM Canada, and the result was an order for 25,000 specially modified Chevy Malibus.

They had six cylinder, 110 hp engines. They had bench seating in the front.  They had no rear defog...not needed in Iraq. They had three-speed manual transmission, with the stick on the floor. The back windows did not roll down.

My dad bough one in 1982 when Iraq canceled the second half of the order, and the cars were dumped on the Canadian market. He gave it to me when I went to school in 1983. The Iraqi Malibu was my first car.

And what a car! I thought it was the coolest car in the world! It was Battleship Grey! It had a favourite highway speed of about 140 km/h! Its stereo was loud enough to cover the screaming coming from the brakes when they needed work and made noise that was loud enough to attract grimaces from all on-lookers as I drove down the road. (NB - When I finally got the car serviced, the front brake assembly actually fell off onto the ground when the mechanics put the car on a hoist and took the front wheels off to take a look at what was causing all that noise.) Forget the Cameros, Mustangs and Thunderbirds....I had a babe magnet!

Just look at it! This is very close to what the car looked like!



OK, that's a slightly used one.  Here it is new...



After a whole four years of hard service, I gave the car back in 1986. As my dad drove it down main street in the Luckiest Little Town In The North one sunny summer day that year, the front right wheel came right off and rolled into a ditch....and that was the end of the Malibu.

My next car was a 1980's Ford Mustang...enough said.






Sunday 24 July 2016

More Democratic Reform

The new Government of Canada has launched a democratic reform initiative as promised as part of its electoral mandate. What follows are some possible reforms that may be worth considering, and why they may be worthwhile.

No matter what, these potential changes must be put to the population in a national referendum on democratic reform. The biggest issue in electoral reform is not the specific reforms, but how they happen.  A national referendum is required so that reform of our democracy is not subject to the interests of political parties and politicians who work within the system, but should never be rulers of that same system. Their conflict of interest is crystal clear, and this issue is simply too important to be left to the politicians.

More than that, the suggestion that Canadians should not be able to vote about how they vote is bizarre and more than a bit insulting. If citizens can be trusted to vote wisely in elections, they can certainly be trusted to vote wisely in a referendum about elections. Politicians need to consult all citizens directly on this crucial issue.

The 11 proposed Referendum Questions follow, reflecting the widest range of likely changes to the present system. Thanks to all who contributed to refining this list. While a referendum is consultative in nature only, whatever Canadians say "yes" to should be implemented as soon as possible. The level of needed support for a “yes” vote to succeed should be 55%, or a majority of electors, to ensure that support for a given measure is clear (e.g. avoid the recent Brexit situation, and follow the led of the Supreme Court of Canada on separation votes in Canada, where there must be a clear majority). This list is not exhaustive, and the author is not wedded to any particular issue. If asked, the author would say yes to a few of these, but not all.  The questions have been kept simple - the politicians can deal with the specifics and complexities of implementation.

  1. Should we have internet voting?
  2. Should constituents be able to recall their Members of Parliament?
  3. Should voting be mandatory?
  4. Should citizens elect their representatives through the use of a preferential or ranked ballot?
  5. Should Members of Parliament represent no more than an average of 75,000 constituents?
  6. Should citizens have the ability to trigger national referenda?
  7. Assuming that the Senate will continue in its "sober second thought" role and not become a competitor to the House of Commons, should Senators be elected?
  8. Should corporations and unions be barred from making political contributions, either directly or indirectly?
  9. Should spending on political advertising between elections be regulated?
  10. Should the yearly stipend to political parties be restored with the caveat that citizens should be able to direct the payments between elections?
  11. Should we have fixed election dates?

The specifics of and rationale for these changes to the electoral system follow. The point is to show what proponents may say in support of these possible changes - if the Government thinks there need to be changes to our electoral system, then here are some possible changes with rationales in support of those changes.

Again, the author is not wedded to any of these. There are arguments in opposition as well, but these are not included as the point of this exercise is to change the system, not to explain why it should remain as it is. In fact, the author does not actually agree with many of the positive rationales presented below, but they are provided as part of an overall rationale for the type of change that many people seem to think is required.

1. Internet Voting: It should be possible to vote either via the Internet, or in person, in the next federal election in 2019.

- Anyone can do their banking and investing over the Internet. They can spend thousands of dollars to buy goods and services over the Internet.  If people can engage these complex and private transactions with ease on-line, the time has come to make voting easier by allowing people to vote on-line if they so choose. This could go a long way to addressing the perennial problem of declining voter turnout - bring the ability to vote to the voters.

2. Recall: Constituents should be able to recall their Member of Parliament and force a by-election, subject to strict criteria, such as 60% of electors in a riding signing a petition demanding a recall by-election within a 90-day period.

- It is ridiculous that MPs cannot be fired by the people they represent between elections. A recall by-election should be difficult to launch, but if an MP's behavior warrants his or her firing, this option should be available to constituents.

3. Mandatory Voting: Every citizen should be required to vote in a federal election, with a small fine being levied against those who do not do so.

- It works in Australia! Taking 30 minutes every four years to show up to vote is not too much to ask in a democracy. If voters do not like the candidates, they are free to spoil their ballots, but it is important that everyone be included in an election to add to the integrity of every Parliament’s mandate.

4. Ranked Voting/Preferential Ballot: Voters should be able to rank their preferences on a ballot, by indicating their first, second and third choices for their Member of Parliament. Rounds of votes should be counted until someone receives more than 50% of the votes. The candidate who receives the greatest amount of support over 50% will win the seat.

- The supports of proportional representation argue that with the first-past-the-post system, the winner of a riding is usually elected by only a plurality - that “their vote did not count”. Actually, all votes are counted, and these people are really complaining that the person they preferred as their representative, or the party that they are a member of, didn't win - and that the person who did win did it with a level of support that leaves a question in the minds of many as to legitimacy of their mandate.

To get around this, ask that voters rank their top three preferences, and count rounds of votes until the winner shows the greatest level of support over 50%. This will allow the winner to be able to show that they did, in fact, get the over 50% of the vote. It also opens a world of possibility to parties that usually get a significant percentage of the vote, but which cannot convince more than a handful of constituents in a given riding to support their candidate. If they work to become everyone’s second choice, they could actually govern one day.

5. No More than 75,000 Constituents per Riding: Make sure that Members of Parliament represent no more than 75,000 people, which would increase the size of the present House of Commons to about 470 members.

- This will dramatically increase the size of the House of Commons, but in so doing, it will also dilute the control that political parties have over their members, freeing them up to more often vote their conscience as informed by the will of their constituents. It does this by making it more remote that a given MP will ever become a minister of the Crown; the desire for which is the primary reason that MPs are loyal to their parties.

6. National Referenda: Citizens should be able to trigger a referendum on any issue, subject to strict criteria, such as 50% of national electors signing a petition within a 90 day period demanding the same.

- Citizens should be able to launch national referendum on issues of the day. It should be hard to do this, limiting the number of referenda that may go ahead, but the option should be available so that whether or not a referendum is launched is not entirely subject to the interests of political parties and politicians that control this country.

7. Senate Reform: The Senate should be elected, with elections being organized by whatever method suits the provinces and territories that they represent, but an elected Senate should continue with its traditional "sober second thought" role so as to not become a legislative competitor to the House of Commons.

- This is 2016, not 1916, or even 1816...it is time for an elected Senate in Canada. As noted by the Supreme Court, our constitutional framework requires that the Senate only perform a “sober second thought” role, and that the lead legislature still be the House of Commons. Nonetheless, as long as this basic role does not change, there is no reason why the Senate cannot be elected - there are two elected Senators right now.

8. Campaign Financing: Political parties and candidates may not receive funds from any source without the source being specifically and publicly attributed, and no person may give more than $1,000 a year to any party of candidate. Corporations and Unions may not donate to political parties or candidates, either directly or indirectly.

- Political parties in Canada pull in millions of dollars from such things as $500 a plate dinners where no tax receipts are requested or given. This makes a mockery of campaign finance reform. All loopholes in campaign financing must be closed so that no person may give more than $1000 a year to any one politician or party. This is linked to restoring the yearly stipend noted below.

9. Advertising Between Election: Spending on political advertising between elections must be registered with Elections Canada, and all such spending must be publicly reported.

- The Conservatives started campaigning between elections. There are no rules governing this activity. If rules during formal campaigns are necessary, so are rules between those campaigns.

10. Restore Public Financing of Political Parties: The yearly stipend that political parties used to receive should be restored, but with the caveat that citizens should be able to direct their stipend to whatever political party they prefer, perhaps through the use of a box on their yearly income tax form.

- If campaign financing is going to be tightened further (see above) it makes sense to restore the yearly stipend to political parties, perhaps at a rate of $2.00 per voter. In its previous incarnation, the yearly stipend was awarded based on the results of the previous election, so that parties like the Greens would get, say 4% of all available funds because the got 4% of the popular vote in the previous election. This could not be changed between elections no matter what the political party in question did. If voters could direct these funds between elections, they would have an ability to reward those parties that performed well, and punish those that didn't by directing their stipend to whatever party suited their fancy, and withholding it from others.

11. Fixed Election Dates:  We have a fixed election date law that is so toothless that its originator was able to ignore it twice when it suited his political purposes.  If the Prime Minister is still free to ask the Governor General to dissolve Parliament and call an election whenever he wants, we need to ask whether or not fixed election dates make sense.

- Fixed election dates provide predictability to the electoral system, and ensure that the rules of the game regarding when we have elections are crystal clear.  The timing of federal elections is too important to be left to the machinations of political parties and their leaders.

Saturday 9 July 2016

Democratic Reform in Canada

The new Government of Canada has launched a democratic reform initiative as promised as part of its electoral mandate.  What follows are some possible reforms that may be worth considering, and why they may be worthwhile.

1. Term Limits: No one should be able to sit as a Member of Parliament for longer than the life of three consecutive Parliaments, or a maximum of 12 years.

- Absolute power corrupts absolutely, so a bit of power will corrupt a bit.  Not all politicians are corrupt, in fact most are not.  Nonetheless, a few bad apples is a few too many.  The longer they stay, the greater the chances that they will abuse their position.  Let politicians take a break after 12 years and get a small pension.  Let them run again after they take one mandate off.  If they choose to just retire, there are plenty of other qualified people who can replace them.  Of course, because the Prime Minister is a Member of Parliament, this means that no PM can serve longer than 12 consecutive years.

2. Recall: Constituents should be able to recall their Member of Parliament and force a by-election, subject to strict criteria, such as 60% of electors in a riding signing a petition demanding a recall by-election within a 90 period.

- It is ridiculous that MPs cannot be fired by the people they represent between elections. A recall by-election should be difficult to launch, but if an MP's behaviour warrants his or her firing, this option should be available to constituents.

3. Mandatory Voting: Every citizen should be required to vote in a federal election, with a small fine being levied against those who do not do so.

- It works in Australia!  Taking 30 minutes every four years to show up to vote is not too much to ask in a democracy. If voters do not like the candidates, they are free to spoil their ballots, but it is important that everyone be included in an election to add to the integrity of every Parliament’s mandate.

4. Ranked Voting/Preferential Ballot:  Voters should be able to rank their preferences on a ballot, by indicating their first, second and third choices for their Member of Parliament.  Rounds of votes should be counted until someone receives more than 50% of the votes.  The candidate who receives the greatest amount of support over 50% will win the seat.

- The supports of proportional representation argue that with the first-past-the-post system, the winner of a riding is usually elected by only a plurality - that “their vote did not count”.  Actually, all votes are counted, and these people are really complaining that the person they preferred as their representative didn’t win with a level of support that is enough to leave no question in anyone’s mind as to their mandate to represent.  

To get around this, ask that voters rank their top three preferences, and count rounds of votes until the winner shows the greatest level of support over 50%.  This will allow the winner to be able to show that they did, in fact, get the over 50% of the vote.  It also opens a world of possibility to parties that usually get a significant percentage of the vote, but which cannot convince more than a handful of constituents in a given riding to support their candidate.  If they work to become everyone’s second choice, they could actually govern one day.

5. No More than 75,000 Constituents per Riding: Make sure that Members of Parliament represent no more than 75,000 people, which would increase the size of the present House of Commons to about 470 members.

- This will dramatically increase the size of the House of Commons, but in so doing, it will also dilute the control that political parties have over their members, freeing them up to more often vote their conscience as informed by the will of their constituents.  It does this by making it more remote that a given MP will ever become a minister of the Crown; the desire for which is the primary reason that MPs are loyal to their parties.

6. National Referenda: Citizens should be able to trigger a referendum on any issue, subject to strict criteria, such as 50% of national electors signing a petition within a 90 day period demanding the same.

- Citizens should be able to launch national referenda on issues of the day.  It should be hard to do this, limiting the number of referenda that may go ahead, but the option should be available so that whether or not referenda are launched is not entirely subject to the interests of political parties that control this country.

7. Senate Reform: The Senate should be elected, with elections being organized by whatever method suits the provinces and territories that they represent, but an elected Senate should continue with its traditional "sober second thought" role so as to not become a legislative competitor to the House of Commons.

- It is time for an elected Senate in Canada.  Our constitutional framework requires that the Senate only perform a “sober second thought” role, and that the lead legislature still be the House of Commons.  Nonetheless, as long as this basic role does not change, there is no reason why the Senate cannot be elected - there are two elected Senators right now.

8. Campaign Financing: Political parties and candidates may not receive funds from any source without the source being specifically and publicly attributed, and no person may give more than $1,000 a year to any party of candidate.  Corporations and Unions may not donate to political parties or candidates, either directly or indirectly.

- Political parties in Canada pull in millions of dollars from such things as $500 a plate dinners where no tax receipts are requested or given. This makes a mockery of campaign finance reform. All loopholes in campaign financing must be closed so that no person may give more than $1000 a year to any one politician or party.

9. Advertising Between Election:  Spending on political advertising between elections must be registered with Elections Canada, and all such spending must be publicly reported.

- The Conservatives started campaigning between elections.  There are no rules governing this now. If rules during formal campaigns are necessary, so are rules between those campaigns.

10.  Restore Public Financing of Political Parties:  The yearly stipend that political parties used to receive should be restored, but with the caveat that citizens should be able to direct their stipend to whatever political party they prefer, perhaps through the use of a box on their yearly income tax form.

- If campaign financing is going to be tightened further (see above) it makes sense to restore the yearly stipend to political parties, perhaps at a rate of $2.00 per voter.  It its previous incarnation, the yearly stipend was awarded based on the results of the previous election, so that parties like the Greens would get, say 4% of all available funds because the got 4% of the popular vote in the previous election.  This could not be changed between elections no matter what the political party in question did.  If voters could direct these funds between elections, they would have an ability to reward those parties that performed well, and punish those that didn’t by directing their stipend to whatever party suited their fancy, and withholding it from others.      

These potential changes should be put to the population in a national referendum on democratic reform.  Whatever they say "yes" to should be implemented as soon as possible.  A national referenda is required so that reform of our democracy is not subject to the interests of political parties which work within the system, but should never be rulers of that same system; their conflict of interest is crystal clear.

The Referendum Questions follow.

  1. Should Members of Parliament be limited to serving or no more than 12 consecutive years?
  2. Should constituents be able to recall their Members of Parliament?
  3. Should voting be mandatory?
  4. Should citizens elect their representatives through the use of a preferential or ranked ballot?
  5. Should Members of Parliament represent no more than an average of 75,000 constituents?
  6. Should citizens have the ability to trigger national referenda?
  7. Should Senators be elected?
  8. Should corporations and unions be barred from making political contributions, either directly or indirectly?
  9. Should spending on political advertising between elections be regulated?
  10. Should the yearly stipend to political parties be restored with the caveat that citizens should be able to direct the payments between elections?