Best Recession Analysis

This is the best analysis of what is coming that I have read so far...

https://www.advisorperspectives.com/articles/2019/10/16/how-to-position-for-the-coming-recession

The investment advice is worth a read....

Market Update and PENCE!

Please see here...

https://www.advisorperspectives.com/dshort/updates/2019/10/01/the-q-ratio-and-market-valuation-september-update

This is the Q-Ratio...a measure of the book value of public companies versus their market value.

This ratio is supposed to be about 0.68.

It was 1.86 as of last month.

That is THREE standard deviations away from the norm.

The probability of anything being THREE standard deviations from its statistical norm is...get ready for this...

0.0029!!!

This is not supposed to happen.

Please see here as well...

https://www.zerohedge.com/health/first-time-crisis-companies-spent-more-buybacks-and-dividends-they-earned-its-all-downhill

Companies are now spending more on buybacks and dividends than they generate in free cash flow.

The last time they did this was...of course...just before the financial crisis in 2007.

I'm just saying...

P.S.! The Kurds just asked PENCE not TRUMP to enforce the ceasefire against the Turks.  

Say hello to the new boss, same as......

Trump's New Problem

Trump has a deal with Ergogen to stop the invasion of Syria by Turkey, which puts America's ally, the Kurds, at grave risk. 

In fact, the point of the invasion was to destroy what the Turks see as a terrorist threat from the Kurds. The invasion risked a complete breakdown of relations between Turkey and the USA. It looks like that will not happen now.

All good...

Trump faces impeachment in Congress. 

The impeachment investigation will go where it will go - likely a vote for impeachment in the Democrat-controlled House of Representatives, and a refusal to impeach in the Republican-controlled Senate.

But maybe not. 

Yesterday the House of Representatives voted to censure Trump over the withdrawal of US forces from Syria to make room for the Turkish invasion. US forces were replaced by Russian forces. This censure was widely supported by Republicans. At least some of them may have reached the end point of their blind, unthinking support for Trump.

So what is the new problem?

I think that Trump's new problem is Pence. 

Pence has just given a press conference that looked....normal. It was a glimpse of what a President Pence could look like, and he looked...normal.

Hmmmm...maybe not "MAGA", but "MANA"! 

"Make America Normal Again!"

I think there is no question that at the same time that Republicans, including some of Trump's staunchest allies, are questioning his running of foreign policy, they are also thinking about 2020, and the possibility of dumping him in time to pick someone more palatable to the Establishment.  He is the shit disturber - Trump was definitely not seen as "their guy", and he was even a Democrat and supporter of Clinton previously. I am certain they have never forgotten this, and many would love to see him gone.

So, I think these are dangerous days for Trump. 

If the impeachment probe finds that he clearly tried to coerce Ukraine into investigating Biden to gain a political advantage in the coming election, that would be a crime. Do the Republicans so clearly love Trump that they will support him even if it is obvious that he committed the crime of Conspiracy Against the USA?  

Until today, I would have said "yes". 

But with this glimpse of what "normal" could look like post-Trump, it may be that everyone should be redoing their sums.

"President Pence" looked refreshingly normal, and "normal" is Trump's worst nightmare.

Bill 21

Quebec's Bill 21 makes it mandatory that no one wear religious symbols if they work in the public sector in the province. People will also have to show their faces if they want to receive public services, forcing essentially Muslim women to remove their face covering, which they wear for religious purposes.

Comments follow...

The Sikhs with the turbans and the Muslim women with the hijabs and the Jewish men with the side curls will all speak French. Unlike with most discriminatory laws in Quebec, there is no language issue here. The issue is the alternation of appearance in aid of religion – do it, and you are deemed unemployable in the public service in Quebec, and you may be denied certain services if you cover your face.

The excuse is secularism - proponents are saying they need to do this in order to have a secular state. 

In fact, there is no state religious coercion in Quebec, which is what “separation of church and state” actually means. That went out in Quebec decades ago. The law does not make the state secular, it forces people to be secular. It implicitly puts forward the idiotic argument that the wearing of a turban or a hijab by a state employee somehow represents the state’s attempt to coerce religious belief on behalf of others.  

No it doesn’t.

The law also purports to make people equal - proponents are saying that they need to do this to increase equality in the province. 

But people are legally equal in Quebec – no one is saying that there is inequality before the law in Quebec, in the sense of state sponsored discrimination, which is what “equality before the law” actually means. Instead of this, the law demands that people be equal in appearance, as if somehow wearing a hijab by a state employee makes others unequal before the law.  

No it doesn’t.

As noted, it also requires that persons wearing religious coverings over their faces uncover to receive public services. So, if you want to ride the bus, you must show your face.  

Everyone involved knows that this likely means that no one who covers their face for religious reasons and who normally needs to ride a bus will now do so. It doesn’t make them equal, it will make them even more invisible.

The Quebecois have to invoke the “notwithstanding clause” to make this work, that is, so that they can implement a law that they say promotes secularism and separation of church and state as well as the equality of persons. (Note - in Canada, a legislature can pass discriminatory laws as long as they invoke clause 33 in Canada's Charter of Rights and Freedoms which allows them to override the Charter.)

Governments and legislatures don’t have to invoke clause 33 if what they are doing is causing a net increase in Human freedom – they do it to take freedom away. 

That is precisely what this does, and what it was obviously intended to do.

Insider Plus

Stock sales by insiders have hit a twenty year high...

https://www.ozy.com/acumen/recession-looming-corporate-kingpins-are-dumping-stock/96958

No one knows about the true health of the various companies they run than they do.... 

...they are selling.

Blue Jays!

I am starting to dislike teams that game the draft rather than game the game. This is catching on...

https://www.theglobeandmail.com/sports/baseball/article-what-separates-the-playoff-bound-rays-and-the-sad-sack-jays-the-rays/

How is AA's team doing this year?

REPO Update

The US Fed's support has been extended to November 4th...

https://www.zerohedge.com/markets/ny-fed-announces-extension-overnight-repos-until-nov-4-will-offer-8-more-term-repos

I did note in a previous post that the problem with the REPO market may stem from the fact that a major bank may have failed, and we are not being told which one it is. 

Maybe it is Deutsche Bank...see here.

https://seekingalpha.com/article/4294008-ghost-failed-banks-returns

The parallels to the failure of an Austrian bank in 1929 - Credit-Anstalt - which launched the Great Depression, are eerie.

I'm Just Saying....

My broken record continues...

https://foreignpolicy.com/2019/10/02/rumblings-of-recession-get-louder-purchasing-managers-index-pmi-manufacturing-tariffs/

Climate Change

Here is a website that outlines what are the most effective steps to take to combat climate change.

https://www.drawdown.org/solutions-summary-by-rank

This is mind-blowing. To tackle climate change most effectively, look to reconfigure refrigeration and waste less food and educate girls. Mass transit is number 37 on the list!

Here is the key take away…

“Every refrigerator and air conditioner contains chemical refrigerants that absorb and release heat to enable chilling. Refrigerants, specifically CFCs and HCFCs, were once culprits in depleting the ozone layer. Thanks to the 1987 Montreal Protocol, they have been phased out. HFCs, the primary replacement, spare the ozone layer, but have 1,000 to 9,000 times greater capacity to warm the atmosphere than carbon dioxide.”

Conspiracy Theory 1 – One very significant reason that the climate is changing is because we made the colossal mistake of moving to HFCs in refrigeration starting about 30 years ago. Prior to this, we had been pumping CO2s into the atmosphere with negligible effect on the climate. It was only once we started with HFCs that climate change became a significant issue, and that climate change really took off – the recent culprit then is HFCs, not CO2. In tackling CO2, we are mostly going after the wrong target, and we are ignoring a far more cost-effective way to tackle this issue – adjust refrigeration, not transportation.

What about the fixation on Net Zero – we will get to a point by 2050 where we will contribute no net CO2 to the atmosphere? 

Can we call this what it is….a lie and borderline insane? No one believes we will do this. And we actually don’t have to do this, for reasons I note below…in short, here is what I actually think about the debate regarding climate change.

The goal regarding this issue should be to find some balance between what we have to do to curb greenhouse gas emissions, and at the same time to adjust to a changing planet given that one causes the other. Net Zero is not balance, but it is extremist, unrealistic and unnecessary, driven by mass psychology that serves the interests of certain politicians and parties and other actors who have absolutely no intention of ever implementing it.

There is no going back now – we are going to have to adjust as the planet’s climate has started changing, and it will continue to do so. But in this we do have a fairly powerful ally that environmentalists seem to mostly ignore. It is here that we need to discuss “An Inconvenient Truth”.

This was Al Gore’s movie of more than a decade ago. Like Greta’s recent prognostications, it was alarmist and purposely disturbing…and very popular. In the movie, Gore looks to a chart that purports to show CO2 levels in the atmosphere over one thousand years, and to show a future massive spike stemming from our burning of fossil fuels.  

Here it is…

When I saw this, I was struck by what I thought was a fairly gigantic analytical flaw. In short, apparently Nature is neutral and doesn’t change – or it will at least be easily overwhelmed. If we pump more and more CO2 into the atmosphere, Gore’s chart seems to suggest that it will just collect there, Nature having no net effect on the level of CO2 in parts per million.

But Gore’s own graph seems to belie his own flawed logic. It shows that for 1,000 years, Nature kept the level of CO2 in the atmosphere right about 400 parts per million, no matter what. That level represents Nature in balance – and Nature always seeks to return to a balance. And yet, Gore’s chart says it will eventually go above 450 + parts per million. Really?

Conspiracy Theory 2 – What was “An Inconvenient Truth” actually about? Gore lost the presidency by a hair in 2000 – had he won his own state, he would have been the president, not Dubya. The movie was an attempted come-back by Gore, which is why he figured so prominently in it – it came out in 2006, perfectly timed if he wanted to throw his hat back in the ring for the 2008 campaign. He could have done a movie about climate change – he did one about himself and climate change. In the end he declined to run again, and has continued with climate change projects and organizations ever since….he is also on the board of directors of Apple. It’s good to not be the king!

Back to the point - our ally is Nature itself. As we pump more CO2 into the atmosphere, Nature will adjust to pull it back out and return to balance – the carbon sinks will not just pull carbon out of the air as they have always done, but they will grow and pull out even more. Net Zero seems to assume this is not the case – in short, the environmentalists appear to me to have forgotten the environment itself. The goal should be balance, not the evisceration of our existing way of life.

My suggestion is simple!! To achieve a balance in concert with Nature, we need to give Nature some time to catch up as it is possible that we have been pumping CO2 into the atmosphere faster than Nature can adjust to absorb it, at least in the short run. In fact, regarding “role sand responsibilities”, Nature will do far more than we will or even can to address this issue – we have to just let that happen.

The CO2 target that makes sense is not Net Zero which would require that we completely replace our entire fossil-fuel energy infrastructure in thirty years. Rather than that, if we simply flat-lined or slightly reduced our carbon footprint over the next decade or so, while leaving existing carbon sinks intact, that should allow for the inevitable balance to be restored.  Net Zero Growth in Emissions, is preferred to Net Zero Emissions.

Conspiracy Theory 3 – Some of the discussion around this issue is totally nuts, and aspects of the concept of carbon capture seems to me to be particularly insane. This pertains to the development of technical processes for pulling the CO2 that we spewed into the atmosphere back out again – picture big carbon sucking factories. We already have a system for this…it is called a “tree”.

In moving back into balance, Nature will adjust in ways that will require us to adjust as well. There are implications for sea levels, growing seasons, the geography of the planet etc. that we will have to adjust to. This will cost money, but I think it will cost way less than trying to move to an economy that does not use fossil fuels at all….and the cat is out of the bag – we have to adjust now anyway.

OK - let’s discuss every mainstream environmentalists favourite boogeyman – Bjorn Lomborg. This guy is the Skeptical Environmentalist. He wrote a book called “Measuring the Real State of the World” about 20 years ago that is well worth looking at. 

Why? 

Because after any amount of reading it is impossible to come away as anything but an environmental optimist. He shows that that Humans have successfully tackled the vast majority of environmental issues that we have ever faced – things are getting better, not worse. He accepts climate change as a reality, including the basic science around it, but has asks some very good questions about the implications of climate change, wondering if tackling this is the best use of our money.

Many in the environmentalist community see Lomborg’s discussion of the relative costs of tacking climate change this as a red herring – as in, he is writing about the costs so as to not engage in the debate. This is only partially true – in fact, Lomborg has touched on the key issue in this debate which is the fact that we have multiple priorities as a society, and we do not have unlimited funds. He challenges us to think about rational and cost-effective solutions, not pie in the sky fantasies. He is the antithesis of Greta and Al.

Conspiracy Theory 4 – Politics and mass psychology are not the same thing. Greta and Al are about mass psychology, not politics or even real solutions. They are about helping people to feel that they are effective, when in fact most of the mass efforts, like the recent climate change strike, are a colossal waste of time. 

To wit, when your revolution is used by main stream politicians for photo-ops during an election campaign, and when the “barricades” are actually police vehicles set in place to keep the crowd in check, you are being used. 

A few people got it and called-out the phonies…good for them, but far too many people were there for the selfies. If you want to change and to do real politics, you need to get in the room with decision-makers and change their decisions.  You do this by showing them how you will help them with money and votes – nothing else matters to them.

How do we flat line emissions?

Well, you saw the URL above it outlines the most cost effective things we can do to address this. Most of these are not earth shattering or especially difficult.  If you want to be part of the solution, don’t buy a hybrid – get a new refrigerator without HFCs.

Note that our family will probably buy an electric car next, not entirely because of climate change, but because the economics of auto ownership will likely have tipped in favour of electrics for local trips by the time we need a new car. We will add solar panels to our roof when we redo it, also not entirely because of climate change, but to get partially off the grid and save even more cash.

Stuff Happening....

I am ramping up the blogs as stuff is starting to happen!

Update, as of October 2, 2019.

The US Manufacturing sector contracted – it’s main index is at the same level it was at in June 2009, which is considered to be the end of the Great Recession. German manufacturing is ALSO at its lowest level since 2009 – also the end of the Great Recession there. These are two of the four largest economies in the world.

The US Fed added $55 Billion to the REPO market Tuesday.  They added $63.5 Billion Monday. The overnight lending market is still not functioning normally.

It is hard to believe the “taxes are due, and we had a cash shortage” argument two weeks into the REPO mess. What is the excuse for this now? 

Fact – banks are not lending enough into the overnight market. Are they reluctant to lend to one another because they know that a major bank has failed and it is being kept on life-support, and they are reluctant to lend because they do not know who will fail next? 

GDP Now in the USA lowered its growth projections for Q3 to 1.8% in the USA. Year over year GDP growth in the USA has not topped 3% since Dubya was the president.

Zuckerberg sold another $90 Million worth of Facebook yesterday.

What’s next?

The US jobs reports will follow this week. Will this be the canary in the coalmine?