Yes, Toto, we're in a Brave New Swirl

Today while perusing a post on the Seeking Alpha financial network I came across what appears to be a very sensible explanation of what we see in the world of finance and business today.

This no-nonsense analysis is occasionally echoed by other writers on the SA site, most notably Mr. David Stockman, former budget director for President Reagan.

He was a high-flyer back in the day, the pre-Greenspan days.

But here I make reference to a different contrarian analyst, Mark A. Grant,  upon whose article I stumbled upon this morning.

  https://seekingalpha.com/article/4140703-universe-edge-restaurant?sht=p3a1ld&shu=8wcf#comment-77507865

From a distance, I've been following the contrarian school of thought ever since the fall of '08. I say "from a distance" because I am neither an economist, nor a significant investor. I am a mere citizen who happens to be a consumer, an American, an author and a semi-retired person, age 66.

This contrarian school of alarmist financial analysis generally demonstrates a perpetual amazement; their astonishment revolves around the credit-mongering house-of-cards built by the central bankers of our preset world (the Fed, EuroCBank, Bank of Japan, People’s Bank of Japan, etc.). It’s not that the contrarians have much respect for of the central bankers’ delicate arrangement of interlocking currencies and trade incentives; rather, their astonishment arises from the mystery of why it has not yet fallen apart and produced a new crash.

You see, this new international construct is not founded upon traditional economics, but rather (as it appears to this layman) upon that (at the time) new-kid-on-the-block upstart school founded in the 1930’s by Mr. Keynes; it’s all about governments and banks perpetually tweaking national/international money spigots to produce certain desired effects.

Our current zombified house-of-cards scenario has been at work for a decade or so now, ever since the crash of ’08, with its aftermath of Great Recession or great whatever-it-is.

Getting back to the source of this present article: This morning I was reading Mr. Grant’s take on the present situation and comparing it for the umpteenth time to the contrarian undertow that continues to make perfect sense. This bearish complaint corner has been going on for so long I'm beginning to wonder if the fiat-wielding central bankers have actually managed to change, by their manipulations, the fundamental nature of money.

Maybe we actually are now in a brave new world where the old rules of debit/credit will never again apply.

With all these electrons flying around the planet--all these monetized digital representations of presumed wealth and bank-enabled assets--haven't we truly ditched the old gold-backed world of currencies-dollars, pounds, francs, marks, drachmas, denarii, Euros, rubles, shekels, yen, yuan, SDRs and zlotys?

Could Bitcoin and such be nothing more than a flash-in-pan death-throes sparkle signifying the end of our great age of post-BrettonWoods expansion? 

Might this extended wave of central banks’ Quantitative Easing actually turn out to be the debt-driven tidal wave that propels us into a land that prime forgot, where all the rules and practices of days gone by are tossed aside forever in the liquidity flood and trash heap of history?

We're getting to a precarious place now where the only solution will be to tear up the score-cards, balance sheets, and start over. The central governments of the world are forever indebted to the central banks of the world. It certainly seems that way to this observer. I'll be surprised if we ever get back to what Mr. Smith called "the wealth of nations."

We ain't in Kansas any more, Toto. Exactly where we have landed is unclear. And it just might be that tapping our ruby-slippered heels of old-school analysis are gone with the wind.

When this whirlwind of fiat-instruments does wind down to a dull roar and all the chips fall where they may, who/what institutional entities  will have wrangled control of the new asset-spewing beast? Whatever that entity turns out to be--it (they) will be in a position to dole out the newly-zombified assets to the world's surviving movers and shakers. I guess most of us out here in lala land will be quakin' in our boots.

As for us commoners, we may all of us have to settle for a mere meal-ticket while the big chips get re-assigned.

A meal-ticket  on a card or a chip, of course.

What troubles me is: what new rules or allegiances will be demanded by the powers--that-be?

What will it cost us, John Doe/Jane Smith, to even get in the game?

King of Soul

Austerity or Stimulus?

Well this is an improvement.

When I was still a gleam in my daddy's eye, Germany fought a world-sized war against France. But now, in 2017, all the obsolete ideology that then fueled both fanaticisms--fascist v. communist--has withered down into a battle of ideas.

Fiscal ideas, like whether budgets should be balanced, or put on hold until things get better.

From a Peace vs. War standpoint, I'd say that delicate balancing act is an improvement, wouldn't you? Budgets and Economic Plans are, theoretically, much more manageable than tanked-up military campaigns.

Now Germany and France-- those two nation-state heavyweights whose fiscal priorities set the course for the rest of Europe--they are getting along just fine now. They expend financial energies trying to keep the whole of Europe humming along on all cylinders. Budget deficits that drag down Euro economies are generated mostly in the lackadaisical southern economies--Greece, Italy and Spain.

But those two mid-continent economic heavyweights--France and Germany, function as fiscal opposites, polarizing European values and budget priorities in opposite directions. They are two very different countries; and yet Germany and France are not as opposite as they used to be. A lot has changed since they finally made peace back in 1945.

At the time of that last Great War, early 1940's, Germany was suffering through the death-throes of a dying monarchy. What was left of the Kaiser's authoritative legacy had been lethally manipulated into a world-class death regime by a demonic tyrant who wore an odd, obnoxious little mustache on his flat German face.

France up to that time was still stumbling through a sort of awkwardly adolescent stage, having booted their kings and queens out back in the early stages of the industrial revolution, and then replacing, in stages, the ancient monarchy with a struggling new Republic.

What the French did as the 18th-century came to a close was similar to what we Americans did, but different. We had ditched King George III in 1776. The French cut off Louis XVI in 1792. On the other side of the Rhine, the Germans kept their Wilhelm top dog hanging on a thread until the Allies ran him down in 1918.

We Americans did a whole new thing after we rejected the old wineskins of monarchic government back in 1776; we had a lot going for us--a vast, nearly-virgin continent that stretched out for 3000+ miles, with plenty of room to grow, and to expand our new-found explorations for Life, Liberty and Pursuits of Happiness.

The Europeans--neither the French nor the Germans--did not have all that fruited-plains expansion space like we had. They were cramped up over there in the Old World.

Having wielded a fierce guillotine ruthlessness upon their king and queen, the French tried to spread the wealth all around, ensuring that everybody got a chunk of it. They had wrung a blood-stained liberte from the palaces of privilege in 1789. Over the course of the next century and a half, they generally moved leftward the whole time, toward an egalitarian idea of solidarity.

The Germans have always tended toward authoritarian leadership, which is one reason why Hitler was able to pull off the abominations that he did. But we Allies put that to an end in 1945.

Thank God.

Now in the post-WWII Europe, the Germans have turned out to be pretty good kids on the block, considering all that had happened back in the day. The last 3/4 of a century has seen a remarkable recovery. They went through some serious changes, rebuilding after losing two wars, and then being divide into two different countries.

Since 1990, when Germany became united again into one country, those krauts have established a pretty impressive record. They now have the strongest, most stable economy in Europe. One reason it turned out this way is: the Germans have historically been, by necessity, very disciplined, rational people and they know how to get things done.

The French are different from that. You gotta love the French. As the Germans have made the world a better place with their great music (Bach and Beethoven), the French have brightened and lightened our worldly life with their very lively, expressive and impressionistic art, coupled with their unbridled Joie de vivre. And let's not forget the original architectural piece-de-resistance of the Western World. It was French creativity married to inventive 19th-century industrialism that brought us the Eiffel Tower in 1889.

The French do progress with style and artistry; the Germans get it done with impressive efficiency and precision.

As an American who has geneologic roots in both cultures, this fascinates me.

Their two different attitudes about generating prosperity also encompass, respectively, their approaches to solving money problems.

Or more specifically. . . solving "lack of money" problems.

A new book, Europe and the Battle of Ideas, explains how these two nations, as the two polarizing States of modern Europe, each lead in their own way to set policy, together, for solving Europe's financial problems. Their tandem leadership is enhanced by their two very different strategies.

The simplest way to describe their treatments of European deficits is this:

The Germans are into Austerity; the French are into Stimulus.

Or to put it into a classic perspective:

The Germans want to balance the books, thereby squeezing all governments and banks into economic stability. The French want the assets to get spread around so everybody can have a chunk of it.

How do I know anything about this?

This morning I saw Markus Brunnermeier being interviewed; he is one of the authors of the new book, Europe and the Battle of Ideas.

https://www.socialeurope.eu/2017/02/europes-future-will-settled-battle-ideas/

In this fascinating, very informative interview, the questions are being posed by Rob Johnson, President of Institute for New Thinking, whatever that is.

Together, these two guys explore the two basic problem-solving approaches to working out Europe's economic deficiencies. And it just so happens that the two main strategies are related to those two old nationalized culture, described above, between Germany and France.

Sounds simplistic perhaps, but this comparative analysis makes a lot of sense when you hear these two knowledgable men talk about the present condition of economic Europe.

So, rather than try to explain it to you, I'll simply leave you with this list of characteristics, as identified by. Mr Markus Brunnermeier. The list identifies how each country's budgetary priorities contributes to a strategy for solving Europe's fiscal woes. My oversimplified version of it looks like this:

France Germany

1.Stimulus 1.Austerity

2.Liquidity 2.Solvency

3.Solidarity 3.Liability

4.Discretion 4.Rules

5.Bail-out 5.Bail-In

Consider these two lists of national characteristics as two different strategies for solving large-scale economic problems.

Here are a few notes I made while watching Mr. Johnson interview Mr. Brunnermeir:

For French, the problem is always liquidity. Stimulus will flush money out of markets again.

Germans see problems as solvency difficulty. Fix the fundamentals. Don't throw good money after bad.

French: If you see it as a liquidity problem, just bail them out.

German: If you see it as solvency problem, Bail in, to avoid future hazards. Bail-in means: Bond holders who essentially gambled with a country or bank and then reap the gains on upside-- they should take losses on downside.

There was a radical shift in attitudes in Europe over the Cyprus bank crisis in spring 2013. Who pays? Who covers the losses?

. . . Bail-in or bail-out?

French fear systemic risk so they tend toward governmental bail-outs.

The Germans, on the other hand, see crisis as an opportunity to address and solve the systemic deficiencies. So penalize the depositors/ investors; others will learn from that, and you will have bank-runs in other places. Such circumstances provide incentives for institutions and individuals to take responsibility for their own actions and investments.

Just how the Europeans get all this worked out, we shall see in the days ahead. And the working-out may provide some lessons for all of us.

Smoke

Dark Rivers of Dark Money

Seismic moneyanamis hit the fan in a big way in Panama two days ago. Multiple georlnalists are reporting that massive dark rivers of dark money have been detected bubbling to the surface in that central American domain. Surreptitious sources indicate that the ultimate origin of these fluidizing liquidities may be the Dark Side of the Moon, an area of high-flying international magnaminity heretofore undetectable to the common man. To this present time in our planetary history, only one witness of this phenom has ever been reported-- a shadowy figure known to some money-watchers as Pink Floyd.

If these reports are confirmed, it could be that how the money world really works will at last be known, according to Tom OnPointe.

Geornalists pouring over the erstwile infamous Panama Papers in a sort of secret cave in London have detected vast streams of dark money sloshing beneath the streets of London, in the sewers of Paris, and beneath the mysteriously enigmatic monoliths of Moscow. Entry points for these large liquidities have been traced to specific hotspots in the British Virgin Islands, Cayman Islands, Switzerland and now, for the first time we can remember, Panama.

But hey, the Dark Rivers of Panama have been showing signs of volatility for a long time-- since even before Teddy Roosevelt led an exhibition to that star-cross'd country to recover a failed French experiment in canal-building. Boldly sporting a Panama hat, ole rough-ridin' Teddy went down there in 1904 and established yankee hegemony over the sluggish Panama Canal project; he assured the world that within a few years the Atlantic and Pacific liquidities would be flowing freely.

Thank our lucky stars, in the 1914 wake of the completed Panama Canal development, vast volumes of worldly goods began floating uninterruptedly from the east ocean to the west ocean and vice-versa for lo these many years. And you know how human beings are in a situation like that. Wherever you've got vast volumes of worldly goods barging past each other going both ways, you're bound to have vast volumes of financial liquidities flowing as well.

Thanks to the ICIJ, we now know that vast portfolios of them insinuated assets are subterranean, which is to say under-the-radar liquidities swishing ever'wheres from Delaware to Doha to Dubrovnik-- 11 million documents worth, they're reporting, revealing trillions of terabytes of wealth hidden between the slipstreaming electrons of international excessive exuberance, implicating perhaps 689 corporations who are no doubt knowingly transferring magnanimous wealth from them that don't have it to them that do, which is to say like maybe from Lucknow to London or Newark to New York.

Which is to say, like it's always been. Rich get richer; poor get poorer. But now on an international scale.

We have obtained photographic evidence of an allegedly rich nation sucking the monetary life out of a poor country. Apparently this is nothing new on the face of the earth.

So the best the thing a man or woman can do is get him/herself a little back 40 or .40 of terra firma for his family so's he can do a little something with it in case something unforeseen happens or the big bad wolf decides to float in and do business on a liquiditous stream of financial privilege.

News at 11.

Glass Chimera

BRICs in search of mortar

When Pat and I were raising our three kids we attended at least 12 graduations that I can remember.

The first round of matriculations came after each one completed kindergarten. Those first three ceremonies were joyous events for us young parents.

The next round was celebrated after each child finished 8th grade. With educational goals moving right along, we were again so very happy, as were the emerging adolescents.

The high school ceremonies were, of course, a biggie, in all three instances. Each young scholar's participation signified, within those symbolic processions, certifiable progress toward educational and life goals.

The crown jewels for our young adults and for us proud parents were the three college graduations, with one at Duke and two at University of North Carolina.

What a grand preparation for our offspring in their proficiencies to go forth in technified 21st-century world!

In every one of those symbolic processions through which our young ones paraded with their classmates up to a podium where they received diplomas, very graduate had a flat item mounted on their head. Hanging from that flat item was a tassel.

The mortar board.

Each young person sauntered forth into our world of work, information and progress, with a mortar board upon their head.

What is a mortar board?

In the oldest sense of this phrase, a mortar board is a flat, hand-held board; it is used to carry a small amount of mixed "mud" (mortar). The actual mortar board, in the real world of constructing walls and buildings, has, attached to it on its underside, a hand-sized vertical handle that enables the bricklayer to carry the board and its mortar payload easily. The worker can then move from one position to the next while carrying an amount of mortar suitable for efficient work in joining masonry blocks and/or bricks together as a constructed wall.

In the symbolic universe of education, however, a "mortar board" upon the graduate's head signifies that the person is equipped to build structures of a different kind.

With the competencies acquired through education, the graduate can, metaphorically, build progress, prosperity, businesses profitable or non-profit,, institutions, knowledge bases, etc.

I was thinking about the mortar board this morning. I was considering its meaning as a symbol, as I have just explained to you. . . but also as an actual implement of constructive work in the real world of building houses. My thirty+ years in construction provided many occasions in which I literally carried a mortar board for hours at a time, while constructing house foundations.

Then this morning, while reading about some new developments in the world of finance and investments, I thought about mortar boards of the metaphorical meaning, which is why I write to you now. There is something interesting going on in the world now, pertaining to mortar boards.

What I read that is so fascinating is an article that I came across in an online news source, Deutsche Welle, that I had never seen before today:

http://www.dw.com/en/brics-nations-launch-new-bank-currency-pool/a-18574402

I gather from reading it that the BRIC (Brazil, Russia, India, China) are gathering resources to fund an investment bank for purposes of financing infrastructure in their countries and also in the "emerging" countries.

If this banking alliance is successful, there will be in the future at least a certain amount--if not a huge amount--of divergence from those countries' heretofore dependence on the West's (USA, German, British, French) banking powerhouses, not to mention their central banks and international largesse like IMF and so forth.

I mean, there it is right there in the pic on the Deutsche Welle site: Putin of Russia, Modi of India, Xi of China, Rousseff of Brazil, gathered with many other national leaders in Ufa, Russia to lay foundations for the BRICs to get new "mortar" supplies for laying their necessary infrastructures in days to come.

Watch out, WallStreet!

Watch out, City!

Your days of hegemony in world finance and dollar dominance may be numbered.

These (formerly-called) Developing nations are now in the forefront of development and they need tools for constructing their infrastructure-deficient economies.

Wall Street's obsession with high-frequency trading and risk-averse bubbly speculation is becoming more and more irrelevant in a bold new world of expanding overseas financial needs-- Markets that are populated by young people--far more young people demographically than we have here in the good ole US of A.

Millions of young people with mortar boards in their hands and on their heads, applying for money mortar to construct sturdy infrastructural walls in which their own institutions will supply credit and new opportunities to initiate and develop new wealth.

Not old Western wealth recycled.

King Dollar, step aside! The handwriting for national developments across the world is on the wall. You are being challenged by the 4 R's: rubles, rupees, reáls, renminbi and probably eventually SDRs.

Better read what those hands are writing on their freshly-mortared walls!



Glass half-Full

The Economist Illumination

I never really understood much about international finance and economics until this morning, when I read a special, long article in this week's The Economist. In the printed edition, the text begins on page 49; it is entitled The slumps that shaped modern finance.

I've been subscribing to, and reading, that "newspaper" (as their editors call it, while we Americans think of it as a magazine) for several years. But I have always labored to figure out what the hell they are writing about. In surveying many past issues, I have contented myself merely to check out the obituary, which is always on the last page. Then I would thumb through in a backwards, right to left, fashion to glean a little from what's going on in the literary and arts world.

Perhaps my years of reading The Economist with so little comprehension have prepared me, unbeknownst to my cognitive mind, for the light-bulb moment I had this morning while reading their concise, 6-page history of financial crises. Be that as it may, the light of understanding finally shone in my head when I read, on pages 51-52, their explanation of the Panic of 1857.

"I think I understand . . ." Joni Mitchell had sung long ago, "fear is like a wilder land."

Long story short, when investors think they are going to lose a lot of money they are overtaken with Fear, so they go hog-wild. Maybe that means the bulls retreat while the bears gather, but the hogs go crazy destroying the place.

Or, as the '60s radicals use to call them, the "pigs."

But I wouldn't call anybody a pig. Maybe . . . a walrus.

Anyway, here is what's interesting about the Panic of 1857: America was at that time an "emerging nation" that had expanded its explorative and technological frontiers beyond its ability to keep all the accounts straight and well-balanced. Consequently, the Brit financiers panicked, and all the money people around the world followed suit, including us.

Today, the shoe is on the other foot. We Americans are like the well-established powerhouse that the Brits were in the 19th century, while today's "emerging" powers, the so-called BRICs and a few others, are in a position similar position to where we were in 1857, or 1907, or 1937.

Maybe the other shoe is about to drop, maybe not.

If you want to know something about how this plays out historically, I recommend you check it out. If you want to read it online, here it is: http://www.economist.com/

Smoke

Tappin' the laptop rap

While we nodded, nearly napping, suddenly

There came a tapping, rapping on my laptop door:



Let us build a free nation, they said in 1776,

Let us mortar it with liberty; we'll use this vast continent for bricks.

So then came our great exploration, on horses, on wagons, then on rails,

in a century of expansion, steeped in sweat, and debt, with bundles of tall tales.

'T'was an age of corn and wheat, a time of tobacco and great toil,

boiling in a cauldron of soil and coal and oil.

On farms and orchards swelled our sweet fruits of sweat labor;

in pastures and ranches our blooms of prosperity's favor.

Iron horse came a roaring over trestle and prairie

through a land ripe with harvest, rich with mineral and dairy.



We were milking the dream, skimming the cream,

moving on muscles and running on steam,

Across the tracks and over the roads, here rode the passengers, there the heavy loads;

extracting the mother lodes, knocking up white picket abodes.

Sodbustin', soon with internal combustion, we rode, driving cattle and pigs with our pokes,

we volks and them blokes, all manner of folks with their yokes, ever now 'n then tellin jokes,

we came casting off troubles, heaving the rubbles, and wielding our worn steel shovels,

we went building our houses, our stations and shacks, and nailing up mansions and hovels.

we're blazin' trails with ole Dan'l and Davy, eatin' biscuits and gravy, 'bibing a wee nip o' liquor,

through sagebrush the saga and ragtime the raga with bustin' raw rigor and unlimited vigor.



Let us build a rich nation! Let us form companies;

Let us develop, and envelope, opportunities.

We'll raise capital, and stock it and sell it, until all the shares are sold.

Let us hammer out a Great Northern Railway, on tracks of steel, burning Appalachian coal;

We'll wrangle our way to the West, dear partner; we'll wildcat our wells while we roll.

Out of raw earth we summon a Standard Oil, a USSteel, and a B&O;

Across the wide prairies we'll fence ranches and dairies, with windmills and farms, high and low.

Let's sign up the hires and string up the wires, tapping Morse signals all the while as we go,

Till we've rolled and we've tolled and we've bought and we've sold all the long way to San Francisco.

~~~

Mr. Edison says let's turn on the light; Mr. Bell says oh yes, and hello

Mr. Morgan proffers finance and wealth, while Mr. Ford cranks up our engines to go.

Summon the lawyers for incorporation, in big divisions, with a company town.

Call Wilbur; tell Orville: let's drum up some capital, and get this great work off the ground!

Pack me a sack of groceries, will ya, from the corner at the A&P,

and buy us some trinkets and widgets and blinkets from the dime store, or the big new Kresge.

Here in our houses with spouses, in our homes with our loans, we'll make and we'll do and we'll prosper;

now we've adorned Lady Liberty with a fashion outfit, and fed her and bled her, and yet we've not lost her.

And 'though the folks in the old country drag us into their wars,

we'll not lose sight of our stripes, nor dim our bright stars.



Let us run our great machines on American dreams!

Drive our Chevys to the levees for beer and ice creams.

Punch us an IBM card and we'll flip out the bucks, at Kmart and Walmart and Radio Shack.

Bring in this Microsoft, this Apple, this modem and fax. Hey, buy me some Windows and Cracker Jacks.

Truck in the autos; pump in the gas; toss me a loan and float me a boat.

Fling wide the fridge! Bring me some chips; hook me up with the tube. Where's the remote?

Sign me up for a card; don't make it too hard.

Just give me some credit; you won't need to vet it. Approve my home loan; I'm ready to get it.

You know it don't matter I'm makin' half what I used to; I'm presently performing some credit jujitsu.



But our great yankee contraption having now been built,

and the boomer consumers all leveraged to the hilt,

the guys down on WallStreet were feeling the pinch.

With fewer and fewer equity opps, they're no longer a cinch.

Traders squinting for spreads, on margins and bets,

our great growth machine slows, then it sputters and spets.

So let us whip up some synthetic collateralized debt obligations! they said

We'll bundle those low-grade mortgages in convoluted configurations, and we'll follow the Fed.

Let's slice em and dice and twice em and thrice em

to pump up a million, trade up a billion, swap up a trillion, maybe gazillion.

Slap me some MBS, shoot me some CDOs and credit default swaps;

those sub primes are hot, triple-A, so S&P say, too complicated for regulatin' by SEC cops.



So our great American ranches morphed to securitized tranches.

Maybe we shouldn't have let the big players get in with bank branches.

Was this dot.com trouble-- that real estate bubble, our last great Kapital hoorah?

Is this all we got left--this bubblin' Booyah?

Have we bought for too long on the troughs, have we sold out too short on the peaks?

Are we so severely crippled by our insider leaks?

Have we reached the end of this long leveraging line? With our great capitalist expansion now running out of time?

Has our American Dream Machine run out of steam? Has it sputtered in the gutter of avaricial schemes?

Say it aint so, entrepreneurial Joe!

Quoth the Trader, "Nevermo."



Now that's a rap, on my laptop tap.

Glass Chimera