Trump's Inheritence

Obama inherited an economic disaster from Bush.  What kind of economy did Trump inherit from Obama?

Real Unemployment - counting long term discouraged workers who were defined out of "unemployment" in 1994, plus all short term discouraged and underemployed, the rate is 21%, not 4.6%.

Velocity of Money - moves faster in a growing economy, and slower in a slowing economy - it is now moving at a slower pace than during the Great Depression. The Keynesian pump hasn't worked.

Food Stamps - declined from a high of about 46 million in 2013 to just over 43 million today - one in seven Americans.  The 3 million decline is about 50% attributable to stricter qualification requirements. It was 28 million in the last year under Bush.

Labor Market Participation (LMP) - declined from 70.1% in 2000, to 62.9% today. With 155 million people in the US workforce, that is a proportional decline of about 10 million jobs. But aren't these just retiring Boomers?...

Labor Market Constitution - ...no, there is a thesis that LMP is dropping and should be dropping as Boomers are retiring.  In fact, the only section of the workforce that is seeing a proportional increase in employment - more people per 100 people working - are those over 55. All other sections - under 21; from 21- 35; and from 35 - 55 are seeing proportional declines - fewer people working per 100 people in these sections. This implies that many Boomers are not actually retiring, but are going back to work as they do not have enough to live on, and employment growth lags for all other sections of the work force. This is a disaster within a disaster.

Obama's record - claims 15 million new jobs. True, if you start counting after the millions of job losses in his first few years in office, but stats show 15 million more people on food stamps as well (see above). The total  is likely closer to 12 million - 90% are part-time or self-employment.

The Pump - US Government borrowing was $10 trillion under Obama + QE of $4 Trillion + probably an effective $6 Trillion from 1% interest rates policy = $20 trillion in stimulus in the last 8 years to stimulate the US economy. Even with 12 million jobs, this is $1.667 Million per job. A disaster. Keynes is dead.

US Debt - will reach $20 Trillion this year, with a $590 Billion deficit this year, and paying $432 Billion in interest this year at a 2.02% rate of interest. This is the lowest rate ever, and will definitely go up. Every 0.25% rise in interest rates costs the US Treasury another $50 Billion a year. Trump’s extra $1 Trillion in borrowing to build infrastructure, plus a 1% interest rate hike, means the US Government will need another $250 Billion a year just to finance debt.

Productivity - this has always been the American ticket to ride - increasing productivity is one prime reason why the USA is the USA. Non-farm productivity has only increased by 3.5% in the last 7 years - about 0.5% a year. Non-farm productivity growth from 2007 - 2015 is almost as low as the growth from 1973 - 1979, which was the slowest growth in modern memory. Slow productivity growth = slow economic growth.

Q-Ratio - value of Stock Market divided by Book Value of all Companies in Stock Market.  Should be 0.68 historically.  It is now at about same level it was at in Oct, 1929.

Shiller P/E - Stock Prices divided by Inflation-Adjusted Earnings of the past 10 years for S&P 500. The Shiller P/E was just shy of 30 in October, 1929...it is 28.02 today. The mean over 135 years is 16.71.This measure is 100% predictive of a serious Stock Market pull-back, but it cannot say when this will happen. The only thing that will put it off is central banks deciding to print money in order to buy equities.

Housing Vacancy - there are 135 million housing dwellings in the USA.18 million are vacant. Prices are about where they were in 2007, when there was a massive housing bubble.

Banking System - about 500 small banks collapsed since January, 2008. Usually the USA sees about 100 small banks open each year - up to 2008 that is. Since that time, only THREE new small banks have opened in America. Of the $4.05 Trillion handed to the large banks via QE 1 - 3, about $2.5 Trillion is still on deposit with the US Fed. They are holding this money rather than lend it because they know they will need it when this high-leverage house of cards implodes.

Stock Buybacks - from March 31, 2015 - March 31, 2016, stock buybacks for S&P 500 companies were $570 Billion! These buy-backs create no new products; they represent no new capital investments; they resulted in no new hiring. They are being perpetrated by company managers who are directing their companies to borrow hundreds of billions of dollars to finance stock buybacks, which they then use to blow out their options at elevated prices, reaping massive financial gains. It is about 100% greed. It is obvious that stock buybacks at a rate of $150 Billion a quarter in just one exchange is now pumping the price of stocks way above what they would normally be - in fact, pumping prices is the whole point of the buy-back phenomena. When it ends, prices will pull-back very sharply.

The US economy has grown under Obama, but at the slowest rate for any recovery in US history, and this with more stimulus than at any time outside of a major war. Obama left Trump a bigger mess than Bush left him.  

The driving economic factor going forward will not be Trump’s policies, but the carry-on effects of the failed stimulus - debts so huge that they will severely constrain future policy choices; rates left so low, for so long that they make deleveraging from this stimulus virtually impossible; and a legacy of mass unemployment and dependency on entitlements - both by individuals and American corporations - that may remake not only the American economy, but American politics and culture as well.   

President Trump

OMG!  Donald Trump is the President of the United States! And he is selling himself as he anti-establishment president!

Uh....no. President Trump has been a member of the Establishment since he was in the womb, and his efforts will be largely on their behalf.

He'll cut taxes for the rich to create jobs?

If that worked, the USA would have zero people on food stamps now, not 43 million. The 1% will own an even larger share of the wealth of America when he is done.

He'll reform bank regulations?

Well, this guy will be seeking bank loans when he leaves office. So, yes, he will reform bank regulations alright, but he will do just what he is told by the likes of Jamie Dimon, and he will loosen them to the point that the US banks will again run amok....then seek another public bailout when it all falls apart again!

He'll repeal Obamacare, replacing it with something even better?

That better thing is called "the 'free' market". He'll consign up to 20 million Americans to the ranks of the uninsured again, guaranteeing more profits to the health care companies that own his colleagues in Congress.

He'll take on Mexico and China to improve the lot of the American working class?

The great multinational companies that own American labour will continue to move production to low-cost countries, except for the occasional and widely-hailed "returns" of jobs to America. The vast majority of these returns will have been planned by those companies, likely years before President Trump came to power. Some job will be created...they are created all the time. In the end, President Trump will put American Business before American Workers because he actually thinks this is good for them.

He'll spend Trillions on infrastructure, creating millions of jobs?

That was Obama's policy. If this worked in 2010 - 2011 there would be no need to do it in 2017 - 2020. Fact - infrastructure is maintained and built all the time. What is different from this normal infrastructure spending with President Trump - and exactly like Obama - is that he'll drive up the national debt even more, as he will adamantly refuse to force American to live within its means...like every US politician in the last 50 years. That massive debt will weigh down all Americans for generations to come.

He has undertaken to not cut Medicare or Social Assistance?

When the budget deficit gets near $1 Trillion a year again, he will "reluctantly" agree with Republican cuts to those programs, in the name of "living within our means". He and his buddies will be OK.

Sorry people but President Trump, who used to finance Hillary Clinton's political campaigns, is as Establishment as you can get.

"Meet the new boss, Same as the old boss..."






.

Obama - Requiem for America

What can we say about the 8 years of Obama's presidency?

His Challenge:

When Obama became president in January, 2009, he did so at the absolute bottom of the Great Recession. The stock markets were at their bottom, and America was about to experience mass unemployment, hundreds of bank failures, and budget deficits equal to government borrowing $2.2 million a minute....every minute of every hour, of every day, of every week, of every month of the year. Dubya's legacy was unprecedented economic turmoil. Much of Obama's presidency has been about recovering from the utter incompetence of the previous president.

Obama also faced relentless radical Islamic terrorist insurgency. ISIS was only two years old when Obama took power.  It has developed into what may be the world's most effective terrorist organization, ever. Unlike other terrorist groups, it conquered and established a claim to an actual state, replete with administration, taxes and a source of revenue, an army, and obvious control of territory.

During his time in office, an ancient division in the life of America became more marked and dangerous - there is a new racial divide in the USA, marked by the seemingly senseless shootings of Black Men by the mostly White Police. The response has come in the form of "Black Lives Matter", and a rekindling of some subtle racism in America, where in some corners the claim that the police do no wrong is very close to a claim that shooting Black Men is not really a compelling issue.

Obama was tasked with responding to environmental issue, and all the aspects associated with those issues, especially the Deepwater Horizon oil spill in the Gulf of Mexico, and the need to respond to the threat of Climate Change, and the question of whether he would approve the Keystone XL Pipeline Project.

Finally, Obama had to try to lead his country in the new directions reflected in his electoral mandate, specifically to do something about heath care in America and to try to heal the Red-Blue divide in that country by increasing bi-partisan cooperation between the Republicans and Democrats.

The Good:

Obama got Obamacare done, which was close to a miracle, and his response to the Deepwater Horizon oil spill was exemplary, especially when compared to the almost unbelievable incompetence exhibited by Dubya in his response to the Katrina hurricane disaster.

Obama took advantage of a yearning for change and democracy in the Arab world to lead the international community to rid us of the parasites Gaddafi in Libya and Ben Ali in Tunisia.

He moved his country well forward in combating Climate Change by agreeing to the Paris Accord.

The US economy staged an economic recovery of sorts under Obama's administration. More on this below.

The Bad:  

The Arab Spring only really took hold in Tunisia; otherwise, it has been a disaster. In Egypt, an elected government was overthrown and replaced by a military henchman. In Libya, Gaddafi has been replaced by a divided nation, with no real central government in control.

Obama's use of drones - they dropped tens of thousands of bombs last year alone, and killed over 4,500 people while he was in office, seemed to suggest that the USA was above international law - just as Dubya's tolerance of torture did before him. This has hurt America's standing in the world.

Obamacare was a success, but only a partial one. Tens of millions of Americans still lack basic health insurance as Obama's plan never had any chance of obtaining 100% coverage. The plan also went out of its way to protect the business profits of American health care providers, failing to bring down health costs in any meaningful way. It will be repealed by the Republicans.

The Ugly:

Obama's foreign policy has mostly been a catastrophe. The policy in Syria - which is regime change - has not only not seen regime change, but has seen the return of Russian as a force to be reckoned with in the Middle East for the first time in decades. Trump's coziness with Putin would have been required of anyone who followed Obama simply because Putin is a player again, courtesy of Obama.

The Syrian catastrophe has also seen millions of people turned into refugees, swamping Europe in a movement of peoples reminiscent of the Middle Ages, stoking Right Wing/Fascist reactions that could have serious consequences for decades to come. Sticking with the policy of regime change literally for years after it was obvious that it had no chance of success was completely incompetent and borderline insane.

Related to this, the advance of ISIS from terrorist group to de facto state could not have happened without Obama essentially abandoning Iraq, regardless of the consequences.

Note - he did NOTHING while ISIS advanced well into Iraq early in 2014, taking over significant cities and territory, untouched by the most obvious weapon in the hands of the West to stop them, namely US air power. How far would ISIS have advanced if the US Air Force and US Navy aircraft had bombed the modified pick-up trucks that constituted their major attack vehicles as they drove through the desert three years ago? One would think that ISIS could have been stopped it its tracks had the Obama administration tried. They didn't, and we have been fighting for three years now to push them back.

On the economy, we also see a record of historic incompetence. Obama claims to have created 15 million jobs while in office.  The number is probably closer to 10 million, but he certainly did oversee the addition of 15 million people to the roles of those citizens who are receiving food stamps just to survive (NB - about 43 million Americans are on food stamps now - just shy of one in seven citizens), which is equivalent to the entire population increase in the USA while he was president.

Even if we accept his claim of 15 million new jobs, most of those jobs are part-time. As well, if you add together the total fiscal and monetary stimulus which he was in office - budget deficits, plus Quantitative Easing, plus historically low interest rates (not all within his control), we see stimulus equal to at least $20 Trillion in eight short years. If we accept his claim to have created 15 million jobs, that still works out to $1.33 Million per job.

This is, quite simply, an economic catastrophe, where the burden of this utterly ineffective stimulus will drag down America literally for decades to come.

Conclusion: 

America is poorer, weaker, more divided, and facing a future with even more serious challenges than it was when Obama came to power. Dubya + Obama = a watershed in the history of America, from being the preeminent country on Earth to one where America's future is now uncertain.

And Trump?

He cunningly coasted the angst that is properly felt in American after 16 years of appalling governance, and was elected on a promise to "Make America Great Again!" There is NOTHING in the policy suite that he has proposed that will have this result.

What would the end of Pax-American look like? We may be about to find out.






  

Fearless Predictions!

Hello!  Welcome to 2017!

Happy Birthday Canada!  You are 150 this year!

And Happy Birthday to Finland - celebrating 100 years of independence from Mother Russia!

Here are the predictions for this year...

Sports:

Chicago's Heyday returns...

Baseball - The Chicago Cubs will repeat as World Champions; the Toronto Blue Jays miss playoffs by 3 games. The post-AA Jays management will keep stocking the farm system in preparation for another generation of mediocrity.

Hockey - The Toronto Maple Leafs, Ottawa Senators and Montreal Canadiens make the playoffs. The Canadiens go the farthest, eliminated in the semi-finals.  The Chicago Blackhawks win the Stanley Cup.

CFL - The Calgary Stampeders will win the Grey Cup.

Super Bowl - The NY Giants will win the Super Bowl, 35 - 21 over the New England Patriots, proving Eli Manning is not a fluke.

NBA - The Cleveland Cavaliers will repeat, but the Toronto Raptors will push them to 7 games this time, with four of those games going into overtime. LeBron James will say in later years that this year's Raptors team was the toughest team he ever played against.

National Politics:

Ontario - Premier Kathleen Wynne will be dumped by her party by the Spring.  Hydro rates will rise in celebration.

Canada - Expect a Constitutional Crisis as the new Senate asserts a role beyond the traditional and conventional "sober second thought" role, prompting a suspension of all appointments, and a strong push to abolish the Senate as soon as possible led by Premier Wall in Saskatchewan.

International Politics:

This will be the year that peace broke out....

Syria - A viable plan for ending the civil war, including a plan to rebuild the country and the return of millions of refugees, will be agreed to and will take hold - sponsored by Putin, Trump, Merkel, and Erdogan. They will jointly win the Nobel Peace Prize.

China - Will spark a military confrontation with Japan in the South China Sea as a way to push the USA out of the region, and to deflect internal dissension.  The result will be a short, sharp air war that the Japanese will win easily.  The new UN Secretary General will launch a multi-country dialogue - China, Vietnam, Japan, The Philippines, Brunei, Taiwan - that will result in a resource-sharing and environmental protection agreement for the South China Sea, effectively diffusing this powder keg.

Ukraine/Crimea - Trump will broker a deal that recognizes the Russian occupation of Crimea, with compensation to be paid by Russia to Ukraine, and a mutual undertaking on the part of Russia to leave Ukraine alone as long as it never joins NATO. Tensions in Europe will ease.

Africa - The new Secretary General will push for and get an international undertaking to focus on peace in Africa.  The result will be substantial new commitments to peace keeping forces through the continent, especially in Mali, the Congo and Nigeria.

North Korea - Kim Jong-un will be assassinated by the military, supported by China which is getting very concerned about the nuclear weapons program of North Korea and the increasingly irrational behaviour of that country's leader. The military will immediately declare a state of Martial Law, after which it will enter into negotiations with South Korea to unify the Korean peninsula. People will freely cross the DMZ by the end of the year. Korea will be unified by the end of 2018.

USA! USA! USA!: 

Trump's First Year - Expect a massive split between Trump and the Republican Congress, seeing Trump seek and obtain allies among the Democrats to keep most of Obamacare intact while revamping the tax code so as to tax the wealthy more, transferring tax cuts to the middle class and poor. Trump will also refuse to sign any legislation until congress agrees to term limits and campaign financing reform - millions of Americans will take to the streets to support him, and the Congress - both the Republicans and Democrats - will fold. He will launch more vigorous reviews of refugees, but nothing like a ban on all Muslims; he will expel illegal immigrant criminals from the USA, while hinting at a possible path to normalization short of citizenship, both of which will totally confound his critics. His approval rating will hit 75%.

Canadian Economy:

Housing - Expect the bubble to start to implode. It will start with a very slow drop in housing prices, 3% this year nationally. With interest rates at historic lows, the B of C will drop them even more to try to keep the bubble afloat. It will fail...the big implosion comes next year, and will see a 50% drop in prices in Vancouver, and 40% in Toronto with a national decline of 10%.

Growth - Canada will enter into recession again as the world's economy slows, specifically Europe and China.

Deficit - All provincial governments and the federal government will run larger than anticipated deficits. Ontario - the most indebted sub-national government on Earth - will need a cash infusion from Ottawa. The year 2018 will see the start of a decade of significant austerity that makes what happened under Harper look mild.

Banks - The main Canadian banks will go from the world's darlings during the last recession, to being seen as a very significant risk. Expect 20% declines in share prices.

Stocks/Investments:  

Have you been reading my other recent posts?

S&P 500 - Expect 3% rise, then a 20% decline below 1,700 by the fall.

DOW - Expect a 3% rise, then a 25% decline below 15,000 by the fall.

Europe - Expect no rise, then a 35% decline by the fall.

Canada - Expect a 1% rise, then a 30% decline to below 11,000 by the fall.

This year could hearken an era of zero stock market price growth similar to what has afflicted Japan for 25 years as politicians worldwide lack the guts to deal with the need to deleverage economies from fiscal and monetary stimulus. The problem with addictive drugs is that they eventually stop working, and you need them just to feel normal...welcome to the stimulus addicted normal.

World Economies:

In general, recessions worldwide. They will be far worse in Europe. This is the year that the stimulus stopped working.

China:

Changes in this country will rock the world...

Economy - A significant recession will hit, leading to...

Stock and Housing Markets - A collapse of the housing and stock markets, leading to massive losses on the part of small investors, leading to...

Military Aggression - A military adventure against Japan in the South China Sea to deflect internal dissension (see above), leading to...

Purge - The purge of hard-core Communists by President Xi Jinping will continue and pick up steam, including revelations that these people orchestrated a mass harvesting of human organs from Falun Gong members with the subsequent killing of hundreds of thousands of these people, leading to...

Democracy - The establishment of an independent commission to recommend a path forward for China to move to a democratic form of government.

WOW!

Popular Culture:

One word.....DISCO!

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.

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.

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....

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.