# Magic Acts or Mass Hypnosis and Shared Delusions



## kahuna1 (21 December 2013)

The Greatest Illusion Ever

Faced with a total destruction of your economy and way of life what would you do ? Anything is the answer.

Whilst US Fed chiefs claimed to have missed the GFC, a team one which is there to prevent rapid falls in asset prices has been around for years in the USA.

Similar teams in different countries have also been there to protect their nations and citizens interests. Hong Kong during the Asian Financial crisis purchased massive amounts of shares to support their markets in troubled times. It was the correct move then, it has been the correct move of many nations over the centuries !!! Yes centuries to protect their citizens interests and as such nothing new, or conspiracy at all.

At times, drastic measures need to be taken.

In 2010 when questioned US fed chiefs and the incoming ones claimed to have no perception of the upcoming GFC or its causes. This is contradicted totally by the fact, the US team called the plunge protection team was dormant for many years, it had its first meeting in the Oval Office in January 2008, barely before the US markets had started to fall and they still are in operation in 2013.

Here is an article about the first meeting

http://www.telegraph.co.uk/finance/comment...ction-Team.html

And here is something about more recent meetings and a lot has been removed, Dr Pippa Malgrem sat on all meetings up till 2013.

http://forums.benswann.com/showthread.php?...le#.UrTGZCcUvfU

So nothing new, the market is NOT as free as we thought and the music has continued until 2013. It is a dirty float and again not too much a surprise.

Governments roles are to protect their economy, their markets and their citizens.

I was going to produce one massive paper but it became too long so I will split it into bite sizes and actually start it with a preface you will not believe and then see if you do at the end.

First paper just an associated one was A Nation on Food Stamps and it is at the end of this first part.

Wordy and long, it Has two key points.

One is that QE by the US fed give US banks a totally unfair advantage vs banks globally. It makes them appear to have more liquidity, appears to make them have more capital. Has removed the need for them to raise capital via stuffing them with liquidity.

Second is that it has stuffed them with ultra cheap funding, removed the need to raise capital, purchased low liquidity bonds off them all adding to profits and at a minimum the banks in the USA have been given, handed profits of 150-300 billion each year post 2008 !!

This was the plan, this was the idea. Its increased earnings on this subset of the whole of the US market by 50% .

It was intended, but it WILL END.

Both are an illusion.

Early 2008

Imagine a nightmare at your fingertips.

A credit market in total collapse a potential disaster worse than 1929-32.

What would you do ? As a nation ?

Anything, is the answer.

Extraordinary measures were needed then. The only way to avert disaster was to provide liquidity and the other measure quite clearly stated was to re inflate asset prices.

It did not matter that asset prices were 2-3 times what they should have been in 2007. It seems that we are back there it doesn't matter in 2013.

So what tools can we use ?

Any. From changing perceptions via economic numbers, to QE which stuffed the crucial financial system and banks with liquidity and cash and then the illusion of profits, not quite an illusion but things called super profits created by an action which is artificial and eventually will go away.

What else ? Anything and I mean anything.

It was needed to stop the 2009 lows, the world did go to the total brink of disaster. Funds stopped flowing and asset prices tumbled, bond were becoming worhtless and this needed to be stopped.

There was a very real and crucial need for these actions in 2009 and 2010, less so 2011 and 2012-13 its got nothing to do with any crisis. It has become like a drug. US equities are 60% higher than then. US feds plan to stimulate the economy via re inflating asset prices was not working late 2012, so the doubled the efforts and purchased 85 billion bonds each month late 2012 till today. It actually blew up in their face. Undaunted they continue.

It is again the role of the government and central bank to take are of the interests of its citizens.

The paper “A Nation on Food stamps” actually questions the interest that are being served.

What at the end of these series of posts will leave you wondering about reality vs perception.

What is real, what is not real. There is out of the 2,250- billion GROSS profits in 2013 of the USA corporate side a question mark over 150 billion in the banking sector. US and UK banks vs EU or Austrlaian have been given a green light and hand up via their central banks both in liquidity, profits and capital raising measures which is unprecendented in modern times.

It has destroyed the US Fed reserve which has just lost 300 billion. Action and effect !! There is a price to pay, In investment markets NOT always equal to the action.

If I was to say of the 2,250- total corporate profits in the USA and the 1,850- Net profit after tax in 2013 the real and actual number is below 1,300- NPAT or 33% lower you may think I am mad.

I am mad in one sense of the word, not in the other. The USA faced with total collapse took extraordinary measures and everything was and is on the table. Economic releases, if you believe US unemployment is 6.8% with 30 million more on food stamps since 2002 vs 2013, and 11 million, soon to be 12 million removed from the employment numbers post 2008, you may as well stop reading.

These measures have taken a toll on both the central bank, the governments finances in tatters and like most price-fixing schemes, because that is what it is, price fixing, they eventually come to an end.

If you throw an apple up in the air, gravity takes hold and eventually it falls. What the last 5 years has seen has been unprecedented intervention by governments and central banks, not in the EU or Australia but UK and USA to alter your perceptions and investing habits. Long term it will be for naught.




I will just post the illusions and see if you can spot the magicians tricks ?


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## kahuna1 (21 December 2013)

Was going to post manually,

Found charts wouldn't come out .... so in PDF

ACT ONE ...

With the PDF on Nation of Food Stamps, that was part of the prelude.

15% of NPAT seems to have been taken away from the US markets.


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## kahuna1 (21 December 2013)

Act 1 Scene 2


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## kahuna1 (23 December 2013)

Hi,

Sorry Brief intermission to the play ....

Groundhog Day Again

Groundhog Day is a 1993 movie where the person finds themselves in a time loop repeating the same day over and over.

My favorite line out of the movie is when Bill Murray comes downstairs after the same day is repeated, again, and asks the elderly woman in the restaurant if she has ever had dÃ©jÃ  vu ? She responds I am not sure, but I can check with the chef and see if its on the menu.

Apologies for the intermission to the play, but a news breaking story was I thought worthy of inclusion.


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## kahuna1 (23 December 2013)

ACT 2
Lucky Nothing else has happened !!

Would I lie to you ? Its Christmas and Santa is coming … so I will tell the truth !! Sorry Mr illusionist …. Mr Magician … have I spoiled your party ?

If you know what makes a market tick. What little brainpower the average analyst on Wall street has, which is none, how could you fool them all ? Can you hear the chicken dance music playing ? Are they all so foolish ? Its what makes a great illusion so amusing to watch. Unless its you, playing the chicken on stage and its your life savings.

It goes on ..... PDF ...

Sorry a few more acts in this play ....


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## avion (23 December 2013)

I am simply amazed that i was able to stumble across this sort of quality of writing and research on a public forum. I do not know why the reluctance you expressed to be published in the mainstream media kahuna but none the less your effort is greatly appreciated from small audience on this forum. I just wish you had a greater exposure which you clearly deserve.

Merry Christmas Kahuna and please keep it up as the time permits. I am looking forward to your writing every time although i am now worried more than ever at the prospect of 2014 but therein lies the opportunity i guess...

Avion.


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## kahuna1 (24 December 2013)

Hi,

Many thanks.

Despite the writing, or content or view, I today join the other people who were and are bears and who are wrong. At least for now.

My little line in the sand, the 1,810- in the S+P 500 is broken, and traditionally despite it only being broken by 1% here, in over 90% of cases, if it breaks one of these levels it does it well and truly. Despite that I remain a bear for the reasons I set out.

Does this mean the next stop is 1,940- in the S+P 500 ? Or around the 2,000- level ? For 2,000- which the first I thought was too far, but the promise of the second level at 2,000- is even more alluring than 1,940-. One cannot rule out any of them.

It could be an extinction burst for markets, in 1929 it went from 300 to 380. Oil in 2008 on the way down actually went sub $35- a barrel which ensured all future production plans would be shelved for a very long time. I commented at that time in 2008 on the fact that most commodities were well below this cost of new production and guaranteed shortages in the future of supply if they stayed there.

One moment my pet BHP was $50- and less than 6 months latter is was $20- and this was a well behaved resource stock. Some which I was not so fond of pre GFC were over $10- and at sub $2- it was cheap, either the world stopped or it recovered. Either the price of oil went up a lot from $35- or the world ended and no new production would have been added post 2008.

This dance, this hypnotic dance is so alluring one can only hum the chicken dance and follow. I decline, despite that promise for the USA side. I am aware how it got here, how it was done, the effects and the likelihood it continues.

But I am wrong, so no amount of writing or blustering will stop this rally if that is what they wish.

John Hussman an economist whom I respect as a brilliant man, has been bearish for many years. He is a scientific type of economist like Shiller whom I also respect, has done a chart which I am not allowed to borrow which has the total value of BONDS and EQUITIES in the US market vs the GDP.

It misses many of the magic acts going on and a reason why he was bearish, whilst I remained bullish, knowing these magic acts drive markets vs anything else. This chart in 2000 hit around 3.5 times GDP for Bonds +Equities in terms of value, in 2007 it hit 3.5 times, today I am proud to announce its nearing 4.

I waited and waited and waited, but I join the bear camp, likely trampled to death here. But I have my reasons to be in extreme fear of the current levels. They are valid and very solid. The cost to the USA sadly on every level of this is clear longer term, even short term I can see these numbers and it brings me great sadness that 30 million more are on food stamps vs 2002. It is strange almost obscene to say this as USA equities hits a new all time high, again, US debt to GDP hits a new milestone and high, again.


This dance, and it is a dance is over. The bond market playing to the same tune till mid 2013 already is now playing another tune. A tune which will add 1.6% of costs to the GDP via higher interest costs as time goes on. The great march of lower and lower rates, lower and lower risk or appearance of risk. A dance that has gone on since 1992 hit a level that was impossible to go below in 2011 and 2012-13. The dance sadly is over.

The market continues on its merry way, trampling the bears and I must be one for the USA at 1,810- knowing at some stage when the market looks in the rear view mirror and even out the windscreen, the view will be the same.

The dance started in around 1990 with 10 year bonds at nearly 10% cost, 6% more above that for junk bond rated issues. It ended with 1.55% 10 year bonds and 4% margins for junk bonds in early 2013. One was 16% cost the other 5.55%. Already the game is starting to go backwards. The vast majority of this move was post 2000 and the 13% cost went to 5.55%. Today, after hitting one brick wall the cost is back to 6.9% and as 2014 goes on I suspect we see another 1% added to this as always should be there. RISK will be adjusted accordingly, so too profit levels that do not ensure destruction in 10 years.

Anyhow the play MUST go on.

Here is act 3 !!  ... only 4 and 5 to go !!


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## kahuna1 (26 December 2013)

Hi,

hope all had a great Christmas with their family and loved ones. This is what life is about, kids especially and their excitement at what Santa has them for being good !! 

I have come up with a name for the play "Weapon For Capital Destruction" I will put it all together at the end. I hesitated to present it all at once as it's a long read. 

Whilst 1,810- in the S+P 500* is a blip now in the rear screen, not far away. but broken ... the fabric of the market is being torn to shreds. 

The problem is, not really a problem, but as you occasionally see events like this where outside forces change the structure of the market and likely outcomes. Some foreseen and  others NOT. They will radically alter the outcomes short-term. Not likely longer term. In this case the short term and long term outcomes are both aligned. US equities creeping higher, so too bond yields. 

For some its a one off event, Uranium the flooding of Cigar Lake taking 8% off the  global supply side a mere 18 months before it coming into production was one such event. BHP having to buy spot Uranium to deliver against production problem it was having added to the frenzy of the short term spike 2006-7. It actually did ZERO to the long term picture. Even I jumped aboard for that spike, but reality and long term reality for me was supply in 3 years or so would NOT be an issue and even gave the correct reasons for it then. Short term, it appeared the end of the world.

This in 2014 outlook is a different scenario as was the GFC. Talking about events prior to them occurring is very difficult to explain when your dealing with most of the time 5 or more different dimensions. One moves, it effects another and another. 

My favourite all time is having firm convictions on 5 different levels and even if only two happen you will get a 25% move for that if not more. Oil and dwindling over supply capacity in 2003, very high cost of new much needed production DOUBLE the spot price and ever increasing demand in the background had many great positives. Even better, someone refining the product and eking out a living refining a $20- barrel product vs $60- made the* equation even better buying an oil refiner such as  vs an oil company. 

Almost 2014, my papers on The US fed loosing 300 billion, confirmed, but what was not clear, only a suspicion is now looking like cast in stone. US treasuries and their yields as the US stock market rallied to another new high, so too US bonds hit a new yield high. BOTH are totally incompatible. Bond YIELDS rising is like trying to help a fire burn and dousing it with WATER.

Higher interest costs on an ultra leveraged US equity market is exactly that. A Negative, not a positive. 

I spoke about the German Bund vs US 10 year treasury spread and my belief that spread on risk, budget positions and fundamental should likely rise to around 2%, that is Germany pays 2% less than the USA on 10 years bonds for good reason for its debt, it was 81 basis points or 0.81% when I raised this in the China Syndrome paper and comments. Its today 1.07% and this is in very short order. Still a long way away from 2% but edging closer.

This is NOT my doing. Not me trying to say it should be done this way or that. Fund managers sometimes become quasi problem solvers for the world but in the end its a waste of time. I have no delusion anything I say will change policy. I can however see it, estimate the outcome even predict it. There is NO point in the EU doing its own QE for the simple reasons that it got its fiscal house in order, however painful and it is clearly seen as such. USA has not, will not and eventually when a market departs from reality, the further it goes away from that, the easier longer term it is to define and predict. 

Their bond market DOES NOT need this stimulus, the EU one. Any benefit would be tiny. The USA desperately needs this to keep their asset bubbles fully inflated. Quite a different scenario. 

The US Federal reserve up till June 2013 reported a loss mark to market of 120 billion just for the 6 months at the start of 2013, if the move at 2.96% Yield for 10 years treasuries as of today and MORE than double the June 2013 move/impact the sad fact is the loss is really over 300 billion on QE holdings. They may report it showing a lessor amount, but reality is the US Feds capital is gone. Now this event has NOT been reported by even people who have plagiarised me for years. It is however real and the outcomes unclear but also crystal clear. US fed will be on a very short leash in terms of Government oversight in 2014 and beyond when its revealed. I would hope Bernanke is seen for what he is, a rogue trader out of control. Confidence in the US central bank will take a hit. This report comes out February 2014 the revaluation of these bonds. If they hide it, as I suspect they will try to, it will lead eventually to even a worse outcome than it they come clean. 

Bond markets will correctly spit their dummy even further. 

These bond yields have risen rapidly the last 6 months and I do not expect any relief since the US budget and Fed are going to try to borrow 11 trillion possibly 14 trillion more over the next 4 years and when the GNP of the planet all countries is a mere 74 trillion, there is NO capacity to do this. Conjecture on my part as someone who has watched bonds for 30 years. I am not totally correct as yet, and another 0.8% rise needed, I am sure the central banks will attempt to try to reverse this, but trying to reverse an impossible demand on a limited ability to actually lend will not work either. 



The demand increase in relation to debt needs to be altered or slashed. Its not been done willingly, so it is being going to be done the only way one can. Eventually USA will revert to normal cash rates 1.5% above inflation, 10 years 1% higher and 30 years likely 1% higher than that. If the US fed wants 2% inflation, its 3.5% cash, 4.5% 10 years and 5.5% 30 years. Likely borrowing cost for example of the USA funding 110% of GDP at 4% vs the current 2%, is another 200 billion a year, which is again going to add of other ignored budget woes they already have. That by the way is 10% of the corporate and income tax takes of the USA.

You can ignore these things, cover them up, but a point is eventually reached where they cannot be ignored. Quite often its the price moving to a level which this occurs and this is the catalyst in late 2013, but also the casting in stone the intended budget of 2014 and 2015 along with the fractured estimates it has. 

Anyhow back tomorrow with ACT 4. As this play unfolds, the decisions will alter the outcomes to some extent. In 2007 it was a brilliant move to lower cash to zero %. US talked investors heads off claiming all was well early 2008. Numbers coming out were diabolical. US dollar crashed, commodities spiked in response to that move, then did 100% back-flip as if they stayed at $144- for oil, US inflation would have hit 1980 levels with zero cash rates. As the real losses became clear the risks even more so, credit spreads fell apart as they should have in the US market. The complex 5 dimensional nature of seeing one thing and relating it to another, is not often apparent, but the interrelationship sadly always is.

Oil in 2013 for the USA as they frack shale oil and gas and rely less on imported supplies is a good thing, but its a speck lost and dwarfed by other factors. If the drain on GDP of these oil imports is removed about 2% of TOTAL US GDP its really beside the point for GDP growth, debt and many other factors longer term. If US debt to GDP rises as suspected by 20% by 2017 an improvement of 2% in terms of trade is not really an issue. Its almost eaten totally if the bond yields and funding cost rises overall by 2%. As we have already seen 1% of that rise you can see my view of a positive vs a negative.

That was just the government side, the funding of the US corporate debt is about the same size and impacts. 

Now in late 2013, humpty Dumpty is all back together and held together via chewing gum, new asset bubbles and as always the retail investor seeing great returns in the US markets for 2013 entering again likely at the worst possible time.

It could of course go another 25% UPWARDS US Equities. US fed is still at zero, tapering barely stopped, tax holiday for all in the USA still goes on. Debt of federal government ignored by all except ... BOND BUYERS. This ever widening gap, bond yields rising, which is a big negative for US stocks and I mean a 10% DOWNWARDS one on just this years rise in yields vs a market that has gained 23% the gap between a REALITY on both sides and an outcome which is also real is vast. 

I cannot see US bonds recovering EVER to their lows of 2011 or 2012 with one exception and that would be a terrible outcome and that would be deflation ultra low GDP growth for a long time. The only way that happens is if the ASSET* bubbles burst. With rising size of the debt demand, falling real ability for the USA to repay it and possibly even service it, the market continues ever onwards. Having a recession and likely a fairly deep one for the USA is not possible to avoid. Spending cut, taxes raised and like the EU the aging population and their demands covered is the only outcome. Or they ignore it and take the benefits away, same outcome as those retiring need to save in never seen percentages, or they draw down faster on savings to account for this, same thing, same downward effect on everything, equities, GDP and growth.  

All such a happy place for Christmas 2013, but it is possible for the juggernaut of the US equity side to march onwards in 2014, as its doing this the fabric of all valuation, cost of borrowing and funding of a debts that are impossible to ignore, gets worse and worse. My deja-vu of 2007 is served again. 

As the meddling on the US side is at all levels, from economic numbers to government jabber, to US Feds actions and so on, this gap already at levels which are all time highs on so many levels is getting wider.

Every day US market rises and US bond yields rise, its me watching a fire being doused with water springing to life magically, or not so magically. Depends on your perspective. 


Anyhow now with the play/book or essays name …. back tomorrow with act 4.


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## kahuna1 (27 December 2013)

Hi,

and the chasm widens, buy buy buy ... meanwhile the fabric of actual earnings goes the other way. Bonds the 10 year US bonds at 2.97% overnight and 1.42% ABOVE the lows of 2011-13, the cost just of this is around 170 billion NEGATIVE yet the USA up 25% ?

This is just the first stage of the whole chain of artificial events unraveling. Spreads between different asset classes at all time lows move next and instead of a junk bond costing 5.5% in 2011 and 2012 and early 2013, its 7% now and likely to go back near normal at 9% over time. Either that or we have a bubble burst and deflation which is bad either way.

Anyhow here is act 4 for all it matters right now.


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## So_Cynical (27 December 2013)

kahuna1 said:


> I waited and waited and waited, but I join the bear camp, likely trampled to death here. But I have my reasons to be in extreme fear of the current levels. They are valid and very solid. The cost to the USA sadly on every level of this is clear longer term, even short term I can see these numbers and it brings me great sadness that 30 million more are on food stamps vs 2002. It is strange almost obscene to say this as USA equities hits a new all time high, again, US debt to GDP hits a new milestone and high, again.
> 
> 
> This dance, and it is a dance is over. The bond market playing to the same tune till mid 2013 already is now playing another tune. A tune which will add 1.6% of costs to the GDP via higher interest costs as time goes on. The great march of lower and lower rates, lower and lower risk or appearance of risk. A dance that has gone on since 1992 hit a level that was impossible to go below in 2011 and 2012-13. The dance sadly is over.




I'm in the bear camp, in that at some point the dance must stop, this phony rally must end and QE (easy low cost money) be withdrawn, debt growth returned to normal levels...but as you (Kahuna) have said "they will do anything" to avoid disaster and so will continue to do so.

Im tempted to liquidate and take a really big short..but the timing. :dunno:


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## CanOz (27 December 2013)

So_Cynical said:


> I'm in the bear camp, in that at some point the dance must stop, this phony rally must end and QE (easy low cost money) be withdrawn, debt growth returned to normal levels...but as you (Kahuna) have said "they will do anything" to avoid disaster and so will continue to do so.
> 
> Im tempted to liquidate and take a really big short..but the timing. :dunno:




Agree, this low liquidity push higher is not supported by the internals...last i checked.

Rally's always last longer than you expect though and getting the timing wrong can be costly. I'd be waiting for a lower high rather than trying to call a top...


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## kahuna1 (27 December 2013)

Hi,

Shorting ? I was asked why not in 2000 and in 2007 and various other slides I have seen prior to them occurring.

Never ever underestimate stupidity. If something worth $100- goes to $200- or for an individual share to $300- ... and you say short it there it goes to $500- and then $1000- your broke. Eventually the share you thought was worth $100- but sold for $200- or $300- it eventually comes back to $50- where you bought it first time around, your 100% correct, but since you shorted  lost all your money between $300- and $1000- ... you can only shake your head at the fact your correct.

During the GFC, it was a game to punish the shorts, it fell 20%  rallied 15% fell 30% rallied 11% almost overnight, fell 11% rallied 8% and so on.

They banned shorting of stocks that went broke, announced deals that would solve everything but solved nothing. Economic numbers that were revised up to 200% the starting number.

I take what I know or believe and leave the rest up to others.

This time around it will make the games that went on with the GFC appear mild. People are expecting something inside their market experience, I doubt it will be even close.

Few more bits and pieces to add to the play. That will do with sharing my views and forward outlooks.

cheers


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## kahuna1 (28 December 2013)

Act 4 Scene 2

The Child makes an Atom Bomb

This is like a plot out of a very bad science fiction novel or movie. A child accidentally assembles an Atom Bomb but is not aware of what they are playing with, or the plot in one of the Planet Of the Apes sequels the Doomsday Bomb never let off whilst Man was still in control, is set off to end the planet and the awful movie.

All of the ingredients covered in this play are very well-known along with their outcomes. Placing them all together is another thing, do these people know what they have built ? Or do they care ? 

(A bit long but whats new ?)


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## Garpal Gumnut (28 December 2013)

Interesting thread.

Are all metacognitions just hunches.

I wonder.

gg


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## kahuna1 (28 December 2013)

Garpal Gumnut said:


> Interesting thread.
> 
> Are all metacognitions just hunches.
> 
> ...




Its not a hunch obviously. Knowing facts, knowing factual content is the only was possibly to reach a Scientific theory based upon facts and supported by facts. A hunch is a hunch, an opinion is an opinion. A factually based opinion and theory as to outcome which is scientifically based and quite different to an opinion based on a hunch. 

That's how I see it. Having an opinion everyone has one on every topic. Having a well educated opinion more likely to be correct.

having a factually based opinion, again different.

In the end ... this says it all ...  this was the first one ... 

“I have opinions of my own - strong opinions - but I don't always agree with them.” 
George H W Bush


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## kahuna1 (6 January 2014)

Well,


Its done. Too long-winded but its all out there.


Sorry but a very long read and we shall see the calls at the end of it. Not predictions to be different, but ones arrived at via a different journey.


Act 5 Third Law of Investing


take care


Mark


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## kahuna1 (13 January 2014)

Apologies,

am thinking and a response is coming, just I find myself going in circles with this one.

In 2007 I wrote about things one never does. The last Non farm payroll and GDP numbers in the USA have floored me.

Anyhow some things I found interesting in January 2014.

Enjoy ... have a nice picture at the end of it.

take care

Mark M


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## dian11 (13 January 2014)

This is very good for me


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## kahuna1 (18 January 2014)

Hi


Blink and unemployment is 12.9% not 6.5%.

Blink and aged 60 you live till 78, blink again its 85.

Blink the debt is 17.3 billion and 107.9% of GDP and via Mr Elmdork who takes 5 trillion out a TRUST fund its 12.3 trillion.

Blink and the estimate is 20.9 trillion debt in January 2018 blink again with the same inputs and its only 19.4 trillion.

Blink and 228,000- people less working late 2013 is declared as 650,000- new jobs gained, by non farm payrolls and blink again its still a loss.

Blink Unemployment fell from 7% to 6.5% when less were employed, blink again the rate rose from 7% to 7.5% on any impartial look at the numbers.

Interesting world and US equities all time highs.

Such a wonderful picture being presented by these people. Is someone going to tell the 150 million with their money 5 trillion in a TRUST fund some unknown economist has just taken it ? Blink and the Social Security funds also appears to have people who have reached the actual retirement age and can claim the pension NO MATTER what income, so you reach age 66, even if your working your still entitled to get it, it appears as time goes on, people who have paid for 35-40 years into the fund in their old age will not claim the pension even if they are working ? Since 99% of them do it now, claim their entitlement, why does it seem to fall to 65% as time goes on ? Are they blinking too much, or is it old age ?

The people do not really matter. They are earnest in their beliefs. Even ones who led policy into the GFC, they deny any possible mistake or error. They do not matter other than they are still there and in even more powerful positions.

Bit long but covers the players and outcomes. Now no more looking at them expecting truth.


Here is the PDF.


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## kahuna1 (13 February 2014)

Hi,

Act 6 Prelude, Economic Warfare Declared.

This soothing music is being played, and I tap my foot to the chicken dance on stage. Whoops just soiled myself again !! US debt ceiling still not agreed upon. Whoops they just passed it !! Market yawns at the risk, actually scarily NO MEDIA is commenting on the debt side. It's only a debt of 110% of GDP !!





Enjoy


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## kahuna1 (22 March 2014)

Howdy,

I was going to writer something profound, but it really doesn't matter.

This last 10 days the USA and UK have both central banks the FED and BOE declared they will run their bonds till maturity and expect the rest of the world to finance their debts at the cash rate FOREVER.

As such interests rates will not reflect risk, FOREVER.

Meanwhile spreads to absolute JUNK bonds have gone to 2% below the average and the overall COST … all time lows even for CCC rated bonds.

Inflation ? Well CPI measures globally still fall out of bed. Asset prices at 100% or DOUBLE where they should be I do foresee very limited returns and in fact sadly due to the state of the fiscal side see them going back to levels of 1950-2000 eventually in terms of risk. Right now there is no risk.

USA with 3.4 trillion in bonds the US fed purchased now able NOT to declare a loss on their value … has given the US treasury 79 billion this year profits despite the fact the bonds themselves if sold are Minus 150-200 billion and a loss total of 300-350 billion for 2013 … yet in 2013 … the USA federal reserve now ignored that loss .. declares that the 3.4 trillion will be held till maturity … the US Feds capital has been FROZEN like a flaming bag of dog poo on your doorstep at 55 billion despite the facts its likely minus 100-150 billion …. and the USA Fed has given US treasury 79 billion in PROFITS this year.

Now this PROFIT … it NOT a profit … well it is that this year they have succeeded in funding the bonds at 0.25% vs a 3% yield … but marked to market they are MINUS 100-150 billion  over the CAPITAL of the US Federal reserve … that’s all gone.

But in doing this, the USA lowered its budget deficit by ? Well it lowered it by 79 billion thanks to the USA Federal reserve. 

Stop laughing …. Chinese housewives and Japan and OPEC and all the others funding this debt pile … are going to subsidise the USA deficit for the next 30 years via lending at BELOW inflation below a time premium or a risk premium.

That’s the plan. Sadly still will not work … but there it is.

The actual net debt and cost … this year …. US deficit estimate on interest is they will pay 250 billion on 17.55 trillion in debt this year. That is 1.42% interest. Remember there are a lot of bonds issued out there pre GFC at higher rates … but wait it gets better … USA fed gives the USA Treasury 79 billion BACK as its been buying the things US treasury issues along with MBS securities and as such …. the interest cost is not 250 billion its 171 billion and that folks is how you screw bond holders. The magical act is complete …. that is a cost of borrowing of 0.974% ...LESS than 1%.

What makes this ponzi scheme more astounding is that instead of just the 17.55 trillion of government debt, someone has to fund the US Feds 4.2 trillion balance sheet and the 3.2 trillion of bonds it holds. Just counting the bonds …. that’s 3.2 plus 17.55 trillion and that is 20.75 trillion in total. I will come back to this number.

I suspect not  many know the USA readjusted its GDP in dollar terms this year, one day it was 16.1 trillion the next it was 17 trillion now its 17.1 trillion. The BEA another USA department which does the GDP … it revised its estimates for the 2000-2010 period and adjusted the GDP up 5% … in one go !! Me complaining about stupid CPI measures … in 2007 … they used a deflator late 2007  which I went your joking and these never should be messed with … they used a deflator which is CPI measure used to make GDP an after inflation number … they used late 2007 a number of 0.8% CPI … a week prior to that the BLS another US department that does CPI and Non farms said it was 2.8% … and even that I said was bull dust as petrol was on the rise in the USA and went up 33% in 6 months but was removed from the BLS numbers let alone the BEA numbers. Anyhow BEA came back in 2013 and went whoops we ripped off bond holders and need to adjust things … obviously those holding bonds linked to the CPI rate still got none of it back … but hey presto USA GDP in dollar terms went from 16.1 trillion to 17 trillion in a single day !!

What is a good thing when you have a debt approaching 110% of GDP and the GDP was 16.1 trillion and I thought we would be 17.6 trillion or 110% of GDP right now … if you make the GDP higher … the ratio falls. An aside longer term they are still stuffed but this is economic warfare and bond investors get the worst deals seen in 3,000- years !! 

Back to the US Feds plan …. so the budget deficit has been reduced !! Ignore the loss …. they did a stress test on banks and since the US fed owns a lot of the paper they normally would have the US fed should under Basel rules have 350-400 billion capital behind it for the MBS securities it holds … but instead its negative 150 billion …. basically 500 billion … USA banks looks fine as a result. The agency debt the Sallie Mae and Freddie are … well … 12 trillion worth … guaranteed also by the USA government.

But lets just be fair … US treasury and US Feds position … it expects to fund at under 1% FOREVER 20.85 trillion … and this will rise. Despite the sleight of hand increasing the GDP total … the deficit is still there and whilst Chinese are happy to fund the USA's debt and others at sub 1% …. and give away 80 billion a year … the worst deal in the history of money, who am I to question the folly and sheer arrogance of the USA in demanding this and expecting this to go  on forever ? 

That’s 20.85 trillion in funding or 121.92% of the GDP of the USA even using the newly revised numbers …. and then they guarantee the 12 trillion in agency debt …. which takes it to 192.1 % of GDP.

Fitch the credit rating agency too USA off negative credit watch overnight. I equate this with the S+P upgrading AMBAC to AAA in 2008 and I stated quite clearly it was broke then and was given the same credit rating as Australia with a debt to GDP of sub 10% back then !! S+P of course downgraded the USA in 2011 and has since then had the department of justice investigating them and only them on so many things which are still in the courts in 2014. If you can hear my sarcasm for these credit rating agencies …. you are not even close to what I feel for them.

Whilst I scratch my head, the spreads of USA debt to EU debt widens … the quality of the debt is worsening and despite this the lower most risky forms of it are at near absolute low spreads to Treasuries and ALL time lows in terms of yields.

Meanwhile the market grinds up. The US fed totally ignores any implications or bubbles or even problems. They reduced the debt ratio via two magical acts which require the rest of the world to bow and service their debt forever at under 1%. this is budget progress in 2014.

Media, well, mainstream talking heads prattle to each other and share their opinions about irrelevant things as usual. I can, if I search, find things that make the valuations of the equity market not look so expensive, not 100-125% over value …. sadly as someone who at times looks top down … macro economically, top down, on the whole big picture … it forces me to move when things get out of control. Things obviously for most are not out of control and taking the USA off credit watch downgrade … is now up there on my list of things I look at with total disbelief. Nothing I suppose new in that. I am a fossil. 

Eventually the market will work out its not a good thing to feed a junkie via cheap credit more credit and not get it to look at its budget. Maybe if Janet can do it she will offer Negative interest on the USA bonds because its a privilege the Chinese housewife wants to own US treasuries and fund their debt ? As for Fitch the credit rating agency, having worked for the French for many years I understand …how your reached this conclusion ….  I really do. Did you have a nice visit from the department of justice ? Or was it that over tanned IMF woman who had her munchins in Australia recently lecturing us about a debt to GDP of 20% but has failed to ask the USA with its 110% debt to GDP pile ? She of course at the IMF  has been having severe problems with the USA as it gets a lot of its funding from none other than ? The US treasury … in turn the US treasury reports to Congress who approves the funding on the IMF's actions.  Not quite as bad a the World Bank, but close. IMF leader at least not needed to be approved via the USA president as the World bank.

Sorry, its dripping off me now … yippee … Fitch upgraded the USA …. maybe they can make a special credit rating for them ?  Instead of AAA make it like the four star general AAAA or a 5 star AAAAA ? And get a savings account for the Chinese housewife to directly fund the debt ? 

Sadly, if you call it a reduction in debt via this means, all is lost. It is I suppose and do we see the 1929 style valuations prior to a correction ? Like back in 2007 it was the 600 lb person fattie stuffing Twinkies down their throat denying they had a weight problem, in 2014, with baby boomers here … not funded in the USA … it expects to with a  17% of GDP tax take vs 40% for the EU even 37% for Australia if one includes super … the 17% in the USA includes Social security … but the USA expects to be able to pay pensions like our super will and Medicare free for the over 65's as they do and pay it … with 17% tax take … vs 36-43.9% takes over 35 nations I have looked at.

Upgrade me … remove 50 IQ points and I too can drool at the current state of affairs and celebrate the USA and its budget and credit rating victories.

Take care


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## satanoperca (25 March 2014)

Hi Mr Kahuna,

Seems that you are not alone.

This is an interesting read.

http://www.theage.com.au/business/m...ther-says-jeremy-grantham-20140325-35f34.html

Or are you brothers or the same person?

This comments spiked my interest :



> hen questioned to provide evidence backing his claim, Mr Grantham said while there was ''some indication'' the crash and downturn would have been sharper had the Fed not intervened, there's* ''no proof on the other side that the economy is any stronger from quantitative easing*''.




and 



> ''The theory is that lower interest rates are supposed to spur capital spending, right? Then why is capital spending so weak at this stage of the cycle?




Sort of reminds of a conversation with a ex heroin addict. You are only an addict when you can no longer afford, then you have to dry out, that's when the true pain comes and then you recover and move on with your life. Is heroin any different than debt/easy credit to the masses. Sooner or later the pain will come, better to go cold turkey than to prolong the addiction as recover will come quicker.

Cheers

Runs off to the bank for another bag full of easy debt to fix my woes.


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## kahuna1 (4 July 2014)

Hi,


NO BAD NEWS PLEASE … we are Americans !!

New high new high …. The beat goes on. The zero interest rates forever has done the trick ... I just cant help however watching this unfold ... as pensions of the US baby boomers are in their worst state ever and they are already retiring. The levelw of funding for them, in 2003 they were 103% funded the corporate side and in 2014 all time highs its actually 68% funded. As for states in the USA and local councils and towns, try something like 55% funded and as for the biggest of them all Social Security its clear with CPI at 2% cost of living in the USA at 1% more so 3% ... and Social security being adjusted up a mere 1% in 2014 that this trend will go on. For 100 million baby boomers their average payout now is a mere $15,000- and in 1995 it was $20,000- in correctly adjusted dollars, but 2030 it will have 100 million USA workers who retire on $10,000- in real terms which is around $180- a week, of the 100 million 70 million have less than $20,000- in super savings or 401k or IRA which is their version. Of the 30 million left 15 million have enough but will run out in about 10 years retired. So when you reach 65, expect to live till 85 on average if your savings run out or you have got none the prospect of $180- a week sounds like a mighty fine plan to me. 

Non farm payrolls and the spree of excellent news goes on, the 288 k jobs gained and jobs gained all the way through the USA actually admitting a decline in GDP of 2.9% is somewhat amazing. Yes they are that stupid, but such is life.


For now no change to interest rates or taxes so there is no reason to sell the USA despite it being near 1929 valuations.

In relation to the latest hand prepared Non Farms, well … its JUNE and as many know the USA schools and colleges take off June and July and millions holiday and summer jobs appear, and disappear each year. What is interesting is that this year only 900,000 more were counted as being able to work v 1.35 million last year, it appears that 700,000- of them got jobs or temporary ones v 410,000- last year so a good number or so it seems.


Sadly, its impossible or very difficult to even follow the logic of the BLS other than reporting the best case all the time when they used an adjustment for the SEASONAL factor this year of 0.5% for 900k workers v in 2013 a 0.5% change for 1.35 million workers.

I keep going back to the actual real NON adjusted numbers and 2013 there was an increase in the population of 2.2 million ad the workforce DID NOT change according to the BLS. What did change of course is that 2.4 million MORE did not get counted in the workforce.

What sticks out how utterly bull )*#)#*% this number is is that in March 2014 the seasonally adjusted workforce was 156.227 million and in June 3 months later when the OVERALL POPULATION is 600,000 higher due to net births v deaths, we find the seasonally adjusted workforce in the USA LOWER, NOT higher, LOWER on a seasonally adjusted basis by 530,000-.

Of course the market loves this, and its just hit 17,000- in the Dow and that 2,000- in the S+P 500 even the 2040-50 level or 1929 …. Again awaits.


Rather than sound like a drone, I know why it's going up, interest rates, half price tax and USA companies are actually even making noises despite paying HALF the tax as a percentage that they were in 2000, they are threatening to move offshore for better tax deals. When we have companies even here in Australia making 15 billion on coal and paying NO tax or selling 30 billion of Apples phones and paying a mere 125 million in tax, its time they fixed the global tax avoidance via companies and fixed the fiscal mess.

Enough,

The ASX, 30th June they just had to pound it, and magically like the magic sell-off the market is rebounding and with a vengeance up 2% over a few days and following obviously the USA lead.

What they are thinking in the USA ? Well its 4th July and a big holiday so there was less than a 1% chance the numbers would be anything other than good. Janet Yellen after all is 67 and needs her numbers chewed before she can digest them and the head of the BLS is non other than the ex NY fed deputy who chews them for her.

Anyhow happy 4th July !! New high !!!

Have no idea what or when the catalyst will appear to turn things. Lending is so lax in the USA its absurd and the prices even more so. Its all held together by China and Japan holding large USA bond positions and its unlikely we see much change for now from them. I would add that these NEW jobs, the temporary holiday ones are NOT what one would call at the best rate of pay... most are bus-boys or waiters or ride attendants at $8- and hour or less. I note even Germany overnight voted in a minimum wage of 8.5 Euros or $12.37 an hour AUD or USD $11.57 and hour which is 160% of the USA MINIMUM WAGE.

One trend I would be remiss not to mention is that Mexico and its $2- and hour wage is the benefactor vs the Chinese right now as more and more US manufacturing goes there and transport from Mexico is much cheaper and quicker vs China so more and more is being switched from China to Mexico but as always out of the USA. It was with perverse interest the latest PMI and manufacturing numbers come out of the USA and despite the fact 40% of the people employed there in 1985 or 50% since 1995 and the charts never ever show a downturn in USA manufacturing despite this. But then again, Janet needs he food chewed …..


Take care


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## Knobby22 (4 July 2014)

Are you sure US minimum wage is that high. I believe some states don't have a minimum and in some it's less than $2.
Also workers are unprotected and often work for "kind".
Where did you get the $11.57 figure from?


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## kahuna1 (4 July 2014)

Knobby22 said:


> Are you sure US minimum wage is that high. I believe some states don't have a minimum and in some it's less than $2.
> Also workers are unprotected and often work for "kind".
> Where did you get the $11.57 figure from?




Hi,


yes very sure about USA minimum wage. Congress just did not pass an attempt to raise it.
The $11.56 is USD converted from the Euro 8.5.

Hope that helps

cheers.

The


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## So_Cynical (5 July 2014)

kahuna1 said:


> yes very sure about USA minimum wage. Congress just did not pass an attempt to raise it.
> The $11.56 is USD converted from the Euro 8.5.




No where near $11 USD, average would seem to be around $7.75 ~ some states don't even have a minimum wage.

http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx


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## joku (6 July 2014)

So_Cynical said:


> No where near $11 USD, average would seem to be around $7.75 ~ some states don't even have a minimum wage.
> 
> http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx




Kahuna originally said GERMAN min wage is USD$11.57 and that this is 160% of US min wage (11.57/1.6 = USD$7.23) which isn't debateable in any way that would challenge the point being made.

I agree the Chinese manufacturing proposition is under pressure... Both from further globalization and also automation.


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## kahuna1 (10 July 2014)

Howdy,

Ho hum, Market up then down. USA and my magical act, it is stunning to have Yellen in her reply to the BIS warning about bubbles to admit that she ad her fellow US fed board members pre GFC admit and openly to NOT raising rates because they saw the chances or damage done by such a raise in rates to be more costly than overheated markets. In the lead-up to 2008-9 GFC she and her fellow board members played down any and all risks associated with bubbles. They saw no problem with the bond markets or real estate or in fact anything.

So here we are 5 years latter after extraordinary easing and its still their view that raising rates will not occur and any and all risks are secondary. They despite having done it TWICE the NASDAQ debacle in 2000 and then into the GFC, the third time is the charm.

For me and my magical act a vast part of this OVER-VALUATION of assets comes from rates being  held at an artificial level. Companies in the USA benefit from cost of borrowing that is 3-4% LOWER than usual and it represents about 20% of their profits as declared right now.

Second cornerstone of the magical act is a fiscal nightmare.

Once in the history of the planet the life expectancy of any species has risen 60% in 100 years. ONCE. IN 1900 one was expected to live 50 years, in 2000 it was close to 80 years for developed nations.

This change and one which cannot be argued about, has brought a dramatic shift in virtually everything. Penicillin is one of the main factors along with cures to a number of diseases that used to be killers. The worlds population tripled in 100 years as a result.

Coming back to the USA and investments, the second massive pillar of this over valuation on a grand scale is the fact that in the USA companies are avoiding tax like never before. We have companies that do 90% of their business in the USA moving their headquarters to overseas so as to avoid paying tax. This has USA corporate tax being charged at HALF thee rate it was in 2000, or I should say being PAID at half the rate. This coupled with massive falls in the rate of income tax being paid especially by rich people in the USA has left their budget in a shambles. NO ONE however seems to care or even comment on this.

Avoiding TAX of course is LEGAL but it should not be. When you have a company selling 15 billion worth of coal from Australia and PAYING NOTHING in tax we know there is something seriously wrong. When you have APPLE selling 10 billion in I PODS and phones and paying 123 million over the last decade, and the parent company racking up 300 billion in profits, again we know something is terribly wrong. It is illegal to have a Swiss bank account and not declare the income, but perfectly legal to headquarters your company in tim buck two who has NO tax and pay the zero tax there, bring the profits back tax paid to the parent and zero paid anywhere.  

There was an explosion in births post WW2 the baby boomers and coupled with an increase in life expectancy of 20 years, the numbers reaching age 65, and when they do living till they are 85 on average has enormous implications for every developed nation. Budgets that were planned on people on average living to merely 50 or 55 or even 60, now face people retired for 20 years post age 65. Most nations with the exclusion of USA have been madly scrambling to cover this fact. 

USA in 2014 has corporate pensions funded at 72% v 103% in 2003. Government ones are even worse, but they have gone a different way there. In 2014, if one looked at a correctly adjusted Social Security pension from 1995 it was $20,000 in 2014 dollars. The actual pension, social security being paid is $15,000- and they in 2014 have adjusted it up by 1% whilst CPI is 2% and cost of living is around 3%. So by 2030 the $20,000- a year pension in 1995 will be not $15,000- it is in real terms now but $10,000- or $180 a week. Since 75% of people have little or NO savings outside social security for retirement this will alter totally the spending of the USA. When the over 65's as a percentage of the population were 10% not so long ago and they will rise to 15% next year and then up to 25% by 2040. Paying just the pension is only half or less than half of the problem. Free healthcare, subsidised prescriptions in the USA are 3 times the cost of the mere pension and despite this, NO planning or any change to anything from the USA.

Like the USA Feds absurd predictions on GDP growth, the budget projections in the USA have costs at absurd levels despite massively increasing people relying on welfare and government medical support.

Yellen and Greenspan are well aware of the plan to pauperise the elderly and along with many now on wages that are well below what one would call a living wage, in this I mean the 1 million Walmart workers on $18,000- a year and $15,000 after tax and social security or the 760,000- McDonald’s workers in the USA at a even lower rates, the numbers post GFC have exploded of those on these wages with a  22% increase there. 

If correctly adjusted the 1968 minimum wages should be in the USA $15 an hour NOT $7.25 and we now have nearly 50% of all workers on these wages and the jobs created post GFC fall 88% into this category for the USA.

Of course, none of this matters, until it does. 

For NOW the valuations LOOK ok on the surface, that is if you ignore the half priced tax, the fiscal mess the USA has and the pension and Medicare side of having to take care of 100 million over 65's by 2040. 

Yellen and Fisher her deputy both selected for their views about ultra low rates and ignoring any and all bubbles and any fiscal crisis from hell will eventually come unstuck as they have in the past. The catalyst for it will be something no one can predict. Time of course will take care of that either way when USA budgets fall well short of their estimates and the debt to GDP ratio resembles Greece or even worse Argentina by 2025. 

But for now, NO tax, NO higher rates and its all apples so to speak. 

When you actually take 15% MORE tax off NPAT the valuations fall massively if you eventually at some stage, unknown are charged the correct rate to borrow it's another 20% taken off valuation’s. When this occurs ? NO idea and the time line is actually finite as 2 million odd more over 65's in the USA are added to the total out till 2030. 

Of course Australia and most of the EU is well prepared for the baby boomers or the population gradually aging, and as such its not much of an issue. For the USA ? Well according to the budget offices there is going to be some magical baby boom, or immigration influx that is 5 times the current level for immigrants and the baby boom hidden in these forward absurd projections have the USA with a higher birth rate than even 1947-64 in the 2014-2040 period. Of course its all rubbish but statistics are rarely examined for their foundations.

For now, nothing changes. The market is running out of reasons to buy. Even companies are stopping and slowing their buying activities in the USA.

One thing stands out in the USA press, the rich complaining despite the lowest marginal rates of tax being paid in 60 years, complaining about being persecuted. Second things that stands out, is the USA corporates are threatening to move headquarters overseas to some tax haven or even a nation with a much lower marginal tax rate so they minimise their taxes whilst maximising their returns to shareholders. I suppose only an idiot pays more tax than they need to, but the moral side of the equation is even USA based companies who do over 90% of their business there are doing it and in the meantime the much needed tax revenue disappears from any governments coffers and the needs of the vast majority of elderly are ignored.

A bit moral, but that’s the state of play. Zero rates forever. No bubbles in sight because if you include an artificial rate of borrowing 3-4% below normal and half priced tax, it all looks well for the USA.

One sadly cannot  argue with the demographic facts about life expectancy and the burdens being placed upon governments globally to take care of them.

Eventually, tax avoidance via these schemes must be abolished and taking a virtually 100% domestic company offshore to avoid tax should be taxed for what it is, theft.

Anyhow take care

Mark 

PS, Yes I was talking about the USA MINIMUM WAGE AT $7.25, THE GERMAN ONE AT 160% of that and the Australian one at 200% of that.


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## DeepState (10 July 2014)

Hi Mike

:dance:  Happy Birthday!!!

What do you make of PIMCO's New Normal arguments?


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## kahuna1 (22 July 2014)

Howdy,

I was asked about GROSS's view about this being the new normal, the current state of affairs and the US fed now admitting to deliberately lowering interest rates. Bill Gross is the 70 year old head of PIMCO who recently had a very public tussle with one of his up and coming fund managers.

PIMCO is massive with nearly 2 trillion under management but falls far short of Blackrock which has exploded to double the size. Whilst one must listen to someone with such power behind them on the sheer investing front, for me Bill   Gross lost my following when he was talking about bond markets over the last 5 years. In particular his overly bearish views on EU bonds 2012-13 which was absolutely wrong and his steadfast down playing anything other than American interests. His views on anything outside the USA I would call parochial at best. His 2012 effort about the Japanese DEBT to GDP ratio showed an astounding lack of any real knowledge of the REAL debt situation when he repeatedly commented on the debt to GDP ratio of over 240% and whilst this is a popular theory of dumb assed media, the fact is that the Japanese government has assets of over 100% of GDP that MUST be counted v this debt. It is the NET debt not the headline debt that matters. 

In a following article he even mentioned the debt of Singapore being an issue, which has two massive sovereign funds with over 250% of GDP in assets overseas, so the NET number is the DEBT is actually a surplus of 150% !! Much the same happens for each nation except for the USA. The 4 trillion in assets held against promises of pensions for government workers and social security are in fact NOT assets in the pure sense and the USA is underfunded on these two pension systems alone for 30 odd trillion, yet GROSS keeps like the rest of them comparing a dog poo when looking at USA with someone like Singapore. Australia with 360 billion or so debt, they never seem to count the FX reserves of 45 billion NOR the Future fund which YES was set up to cover government pensions but due to radical changes to contributions and PAYOUTS it is NO longer needed and the NET debt for Australia comes in at 215 billion or so but its does not stop these types.

As to the new normal, I have heard this so many times over my career inside the market since 1982, it actually makes me wonder about the people who prattle it. For a fund manager,  they get paid a fee most times no matter what. A really good one has YOUR interests at heart and if they PERFORM above the benchmark then they get rewarded, but these are few and far between. For the main, they get their 1% or 2% fee no matter how good or badly they do v the market, so in Australia for example the two largest managers, the two of them have NEVER in the last 15 years predicted the market went DOWN year on year. Reason for this, is they think if they DID people may take their money out. In 2008 both AMP and CBA had predictions of market gains one for 15% and the other 13% and the 2008 result was a loss of 41%, so their predictions were over 50% OUT. Of course everyone gets it wrong but to have 15 years of only up calls is what they have made for their own interests.

As to the new normal, having dealt with a bias view and other views expressed by Mr Gross, again everyone is entitled to an opinion and till time has elapsed and the prediction of opinion can either be proven wrong or right it's no use debate an opinion until that time.

Money has been around since about 1700 BC and prior to that bartering and lending occurred up to 6,000 BC as people lent based upon cattle or crops as yet to be produced. Money and in coin form has been around since 1,500 BC and since then money lenders. For all of those 3,500 years, with the exception of the NEW NORMAL as Mr Gross and Yellen and Bernanke and Greenspan along with a host of others is the one exception to what is 8,000 years of Bartering, trading, money lending and common sense.

In times of high inflation, money lenders charged MORE to lend, to lend to higher RISK and highly leveraged people they charged MORE. The risk of NON repayment was higher so they charged MORE and got more for lending. Along comes the year 2000, and post 2000, these rules have gone somewhat out the window for the USA in particular. Post GFC despite inflation at 2% cost of LIVING at 3% the cash rate has been stuck near zero for the past 5 years. The Bank of ENGLAND with 300 years history did not ever lower its rates below 2.5% in all that time and I suspect if it had been around since the dawn of money about 1,500 BC that also would be true.

This is NOT normal and whilst its becoming accepted as NORMAL, it is nothing of the sort. The USA and its debt to GDP, its well over 100% of GDP. Whilst the headline budget deficit has been reduced by the US fed NOT marking to market its loss end of 2013, declaring a profit to the US Treasury and handing them 79 billion as profits when the mark to market was 155 billion Negative is one reason the headline number has fallen. The Contingent liabilities pre GFC the money it owed the USA federal government on promises via pensions and Medicare was around 44 trillion in 2007, today its 130 trillion. Despite this alarming blow-outs it's not even close to a realistic look at the costs. The sad fact is that the baby boomers and their needs are NOT being realistically counted and as time goes on, this will become more evident.

I am of course amazed the fact that the official liability of 130 trillion is likely 200 trillion or more than 10 times the GDP of the USA or 1,000%. Of course they will be slashing these promises and impoverishing about 100 million over 65's in the process by 2030. EU had to face up to its own nightmares on this front in the 2010-2012 period and did so, the USA to date has ignored it and swept it under the carpet deftly. This I would call the NEW NORMAL v anything else.

As to interest rates in the USA, this is an artificial measure which the market and lenders have accepted for now. I would actually call the acceptance of these measures almost criminal having looked at the estimates that have being forwarded as factual. In this I mean forward budget estimates that have income tax rising by 30% above inflation in 4 years, corporate tax income by 75% above inflation and spending despite the numbers of baby boomers retiring and expecting their pensions and free healthcare, the numbers on the cost side are at best absurdly optimistic in the extreme. They are of course bald faced lies and they are unable to deal with the real implications of a fiscal nightmare of not having savings for the baby boomers retiring.

For now, the fiscal bubble, the debt bubble as people make a dash for trash in the USA buying anything with a yield and ignoring risk or lessons taught over history, this will remain the case as GROSS suggests, a new normal. That is until it doesn't. As long as Japan holds 4 trillion in USA treasuries and China has FX reserves of 3.9 trillion mainly in USD, these will support both the US Dollar and the debt binge. Normally when someone borrows more and more, and their longer term ability to repay it becomes more questionable, the rates RISE in a normal market to account for both increased demand and more risk. IN 2014 and since 2011, when the GFC was all over, this strange market has continued with the USA and its federal reserve now thumbing its nose at several thousand years of very prudent and sensible lending practices. Of course like most things its in their own interest. If the USA which NOW pays for 17.6 trillion in debt a cost UNDER 1% to fund it, if it was even just back to mid range of normal times the cost of funding would be 2-3% higher than right now. The USA budget deficit headline number would be DOUBLE what it is and people would be asking questions about the ability to fund it.

That’s just mid range with NO risk premium or penalty added. 

Will this state of affairs last forever ? Many like Mr Gross think so, but history has taught me with at least 5 different bond tumbles the last 30 years this state of affairs is on borrowed time. Either way, happy to stand aside and despite my negative view on USA bonds, I actually am LONG Australian ones and have been for some time. Difference is of course the fact they are trading many percent ABOVE USA bonds and the rest of the EU. 

I read a strange article in the newspapers over the weekend in Australia about perpetual bonds and how risky they are. I would agree of course with a few exceptions. Banks issue them here and if any one of our 4 majors went under, we may as well turn off the lights. So taking on a perpetual bond say NABHA when it was trading at 66 cents v face value of $1- or I should say $66- v $100- I was and quite happy to take a margin over BBSW on the bond, plus effectively getting 1.5 times the going rate. They have like most things rallied with the market and now are over $80- per $100- bond and not such a good deal but as always, its six of one half a dozen of another with these things. I am not buying here, but reducing, and pre GFC to my utter amazement these bonds were trading over $100- in value ignoring the risks totally. Your basically married to the issuer of the bond for life and whilst many may not LIKE this, I actually am happy to get BBSW plus 1.25% then multiplied by 1.5-1.3, but here we are getting expensive and as such I reduce the higher they go and await the next correction. 

In the USA, the market for perpetual bonds has been driven up to insane highs and many are trading at PAR just like pre GFC. Trading at $100- face value vs what should be some margin for taking on the risk of the fact that the bond NEVER matures and your married to the company for life. Whilst I have NO issue with being married to a massive too big to fail bank, I demand a premium WELL above what the USA is now trading at. It is just as insane as say buying NABHA at its peak in 2004 I think it was $193 and hit a low in the GFC of $60- .

As to the new normal ? Well it remains as long as China and Japan fund the USA. It remains until the diabolical fiscal state of affairs is revealed as the baby boomers retire. Once in the history of this planet has the life expectancy of any species risen by 60% in 100 years. HUMANS. In 1900 it was expected to live to age 50 in developed nations, its now 80. Most of this occurred post WW2 via penicillin and various other cures for things. USA instead of like each other nation saving more and more as the percentage of over 65's rises from 10% to in some cases well over 30% the USA has ignored this, the healthcare implications, the pension implications and the fact is the baby boomers from 1947-1964 are retiring NOW. It is too late to do much but watch with morbid fascination the plight of the USA as time goes on and 100 million are about to get a pension which was in 1995 $20,000- a year but by 2035  will be $10,000  a year. They basically have been stealing via indexing and in 2014 Social Security was adjusted 1% up for inflation, CPI is 2% and REAL cost of living increases close to 3%. So they will in effect be loosing 2% for every year.

Whilst this is the plan, clearly the -plan. I cannot imagine the stupidity of paying 100 million people $180- per week v $380- per week and they expect their will not be a massive backlash and revolt. But for now, Yellen the worst of the worst ignores all.

Have fun.


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## DeepState (27 July 2014)

Thanks Mike, awesome post.

I am holding a duration of ~2yrs and shortening my credit duration right up as well via liquidation of perpetuals. Australian biased. Within this, 30% non-gov't. The purpose of the question, for me, is to assess whether a blow out in long end is going to happen, if so, by how much.  This is for figuring out whether equity valuations, particularly Australia in this instance, are into the extreme valuation range.

Observations / Invitation for comment:

I am not a believer of the PIMCO stance, but do think it has some merit.  Its two main arms, for me, are that labour productivity growth has been very low and total factor productivity growth has basically vanished. Secondly, apparently, the long term real yield is actually zero (do not know the source).  In combination, the fixed constant in Taylor rule settings is likely to be lower than in the past.  Particularly when consider the demographic inherent in participation rates.  Further, wage inflation is possibly going to face downward pressure in the nearer term as declines in participation rate not caused by demographic factors are reversed in part.

Your mention of the value of pensions and healthcare on the US Federal Balance sheet are well made.  But Australia also has similar issues.  Although the Federal employees are moving to defined contribution, the prior cohort still has unfunded liabilities.  If we are to count the Future Fund assets ($98bn as at 30 June 2014) when assessing national wealth, we need to consider the liabilities as well.  In aggregate the unfunded liability was 157bn at 30 June 2014.  This makes no mention of our social security benefits as an actuarial valuation which are likely to outstrip this manyfold and probably represents something which is valued in multiples of our current production...perhaps not 10x, but as you say, that will be wound back.

In terms of gross and net government debt, I mostly degree.  But I look upon the difference as something akin to financial repression.  The government entities which hold the debt are somewhat compelled to do so where these are bonds incurred through genuine debts. If gross debt ballooned, but net debt stayed the same, the government is essentially forcing its own entities to swallow it. It's actually a transfer.  A funny kind of QE, except sterilised.  Singapore's bonds are essentially unit trust certificates on prior surplus and, as you say, difficult to call bonds in the same sense that bonds are borrowing.

Japan is horrendous on the above practice.  It illustrates how much they are doing to keep bond yields in check despite being insolvent on an actuarial stance although solvent on immediate cashflow.  Together with the biggest print I have ever witnessed outside of a war, they still stand...how is that so?  The US is stuffing proportionately less into its controlled entitites.  Is that an indication that further financial repression is available via the government entities?

I don't view the mark-to-market reporting from the Fed to Treasury as being necessarily untoward.  They are hold to maturity assets and this would be the approach taken for private entities in the same situation.  It all evens out in the end anyway.  That said, the pathway of the Federal budget still looks really bad.  IMF Article IV for the US just released makes the point that decreasing labour productivity will see even the President's proposed budget turn from a reduction in debt/GDP into something which grows.

The cross holdings between nations into USD is an important development, I think.  This situation is binding on all and is a dynamic which I am not sure has this level of precedent.  It also goes way beyond money in that the US is the only hyper-power and disorder is almost assured if it withdrew voluntarily or not from this mantle, despite evidence of isolationism in responses to Syria and now Ukraine.  The US is absolutely too big to fail.  This has never occurred in our history.  Financial markets are just a subset on international relations.  Just grease in the machine.

The fiscal situation in the US is ridiculous.  Interest rates should be higher.  Fed is finishing with QE in Oct.  The remaining pace of purchase is tiny.  Japan is accumulating as a means to support its exporters although China's rate is moderating.  Who is buying the curve?  Why will they stop?  Any expectations which are more realistically anchored to fundamentals must surely be priced in by now given it is so widely telegraphed. This is not like the Bernanke musings, which raised rates for a while during a liquidity wdl from EM into the US...only to fade again after that.

The forward rates implied in the curve have always been too bearish for years now.  I thought the Secular Stagnation perspective of Summers was completely nuts, yet it is realistically the case in Japan and a genuine possibility in Europe.  Expectations keep ratcheting down in the US.  I don't believe it, although he may believe the equilibrium interest rate is negative, it might just be lower than we have been used to. This would be PIMCO's thesis in part, although PIMCO also believes in reversion of real yields towards the long term average of zero.  Historical inflation in the US for the century is mid 3%.  Real yields would naturally be higher in an environment of less developed markets and in the absence of inflation targeting.  Putting these together and it's not absurd to have long bond yields at around 3-4 or so (vs 2.5 currently).

I take the view that the US is too big to fail globally. The cost on the fabric of society and international relations is too high for this to be permitted.  The nature of world power is actually unprecedented in anything like the modern era. Everything needs to adjust to this constant.

How does this happen?

One scenario: tolerate higher inflation whilst maintaining historically low inflation rates for a while as hinted by Fed.  Federal liabilities in social welfare continue to be eroded gradually and tolerated via boiled frog adjustment.

Another scenario: Earn out via private sector stimulus.  This cannot be supported by fiscal means and requires monetary stimulus to keep cost of capital low and possibly the USD as well.

If issuance by private sector blows out credit margins, gov yield may also be dragged higher, but this has a limited cycle before interest bills get too large for the government to bear without special steps like more financial repression or an understanding that the economy will not be good if fiscal balances eroded due mainly to interest burden, offering context to the Fed to alleviate the pain and attempt to manage the fall out via some type of macro-prudential whatever.

Although anything is possible, it does not seem too likely that long rates will move beyond 4%.  Stuff just happens to stop bond riots.  When someone tries to start one, like S&P, their ultimate CEO gets booted and the parent company has to cough up $1bn just to get on with life.  The Fed is politically influenced.  This show looks like it will keep going for a while.  Finance is just a tool of politics when the institution is Leviathan.

Jeffrey Gundlach: The new normal is actually no normal.


Thanks Mike.  Pls feel free to push back.  I'd rather you point out where I am wrong than the market.


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## kahuna1 (26 August 2014)

Janet Yellen Declares Zero Interest rates FOREVER.

As the S+P 500 almost breaches the 2,000- level v a low of 666 in 2009, Janet Yellen has now declared ZERO interest rates forever. 

She sees no problem with Stock Prices 3 times the 2009 levels.
Having received instructions from Ben Bernanke after his 3 million dollar speaking tour to Investment banks such as Morgan Stanley and Goldman Sachs and now settled in his million dollar job for life at the Brookings Institute which is funded by Goldman Sachs, Ben Bernanke has decreed rates are to stay at zero forever.

This is much needed to further inflate asset prices and create profits for the investment banks to fund all their external employee's.


In a separate announcement, Jacob Lew a lawyer, Now USA treasury Secretary and chief trustee of the Social Security pension scheme, Disability pensions and Government pensions, ex right hand man of Ex CEO of Goldman Sachs at Citibank, Rubin, Lew has declared anyone NOT paying into their employee’s superannuation fund will NOT face any prosecution. This announcement comes as the S+P 500 pension plans hit a new low of 71% funded and 1.73 trillion underfunded from a 103% funding in 2003. USA corporates will no longer have to bother. This 1.73 trillion is actually 100% of all profits declared by the group after tax in 2013. 

Mr Lew has also decreed via instructions from head office, Goldman Sachs, any holders of cash in the USA will be punished forever. With inflation CPI at 2% and cost of living inflation around 3%, all holders of any cash will be paid zero forever. Mr Lew is also proposing to make it illegal to hold any cash in the USA. 

Ms Yellen not to be outdone has decreed that you can lend to her, for a long term bond at 1% for 30 years and with likely cost of living inflation at 3% or more over that term she will give you back in real terms about 40% of your money. Of course by then all holdings of cash in the USA will be totally illegal and it will be confiscated.

This leaves you one choice, one choice only. Buy the S+P at 3 times the level it was not so long ago.

Mr Jacob Lew not the same age as Yellen and needing a speaking tour after his term in office has declared NO tax for any employee of any investment banks. He deemed their service to be in the national interest and as such all income from them to be tax free.

Yellen countered and announced plans to stone anyone who questions her rule. Any person questioning USA economic releases or policy is to be branded     un-American and sent to Cuba.

Meanwhile President Obama was seen outside Walmart with a Tin Cup after Donations from the Walton Family who employs 1.4 million Americans on around $16,000- a year. Walmart declared 15 billion net profits and promised not to move overseas for tax reasons because its fulltime employee's were the recipients of over 30 billion in federal welfare. In most states in the USA the largest group on food stamps are the Walmart employee's followed by some of the fast food chains. Makes sense, said Obama they are doing a great job paying tax at 13% on 15 billion and Welfare payments to employees top 30 billion in  2014.

Meanwhile Bridgewater who did a study and announced that 85% of all public pension plans would go bankrupt in 30 years, in the wake of Yellen's decision to utterly destroy returns on two asset classes, Cash and Bonds, revised its estimates to 95% collapsing and 65% of them by 2025. Mr Jacob Lew the genius at Social Security and Treasury declared that Disability Pension scheme which was estimated in 2012 to last till 2024 will go broke in 2016, and a closer look its actually 2015.

Sadly all media coverage has been banned. Like when the S+P downgraded USA's credit ratings, Bridgewater is under investigation by FBI, Homeland Security and even mentions of ties to ISIS have been mentioned.

Strange world when you can't sort facts from fictions. One fact is that in 1900 we lived till age 50, in 2014 its around 80. This is a 60% increase. This is denied by Mr Lew at both treasury and Social Security and derided as an un American plot by ISIS the new bogey man !!

Mr Lew reiterates his numbers tell him the USA and its over 65 population now at 14.7% will NEVER go above 19.7% not ever and even better paying for healthcare and the sad fact that if your over 65 you are more likely to be disabled will not see ANY increase in spending NOT EVER. As a percentage of GDP neither will rise despite the over 65 population doubling in 15 years. Asked about Japan he denied they had any people over age 65 and despite the real number being 26.7% in 2014, Mr Lew claimed it was a myth and it was due to their complexion that it appeared they were over 65. 

Mr Lew speaking from his office called it all an Imperial Plot by Ukrainian sympathisers backed by Boris. Is that Boris from the Bull-winkle show ? 

Sadly, Yellen has declared war and returns in the USA on two key asset classes are to continue forever being destroyed. Those saving for pensions, don’t worry in the USA as its now not illegal for your employer to do nothing. You will be fine on $150- a week and since you only earn $300- a week you should be able to save and make up the rest was the comment from both Yellen and Lew and Mr Elmendorf at the CBO office. 

In breaking news, Mr Obama has been arrested for public nuisance begging in front of several Walmart stores for the upcoming 2016 elections. He had to be protected from workers inside who eventually recognised him and wished to complain about their $8- an hour wage and the fact that they only get 1 weeks holiday paid a year. Mr Obama's protection detail from the Secret Service were not to be found as they were told by Mr Lew their pensions like all others would be taking a 60% haircut. 

Nope not a thing wrong with the USA. Being blackmailed or given little choice to get any return but to buy assets that are 2-3 times the 2009 levels and all is well !! Whoops here are the marines at my doorstep with a 5th class ticket to Cuba. 

Enjoy the rally.


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## wayneL (26 August 2014)

Kahuna, the scary pary is that yourscenario is almost believable.


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## satanoperca (26 August 2014)

wayneL said:


> Kahuna, the scary pary is that yourscenario is almost believable.




Bugger, I thought that was real.


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## kahuna1 (18 September 2014)

Hi,

Been silent for a while.

Well when I drew my line in the sand at 1,810- on the S+P 500, I like many join the hysterical bears camp. For me I was well aware that in January 2014 when Yellen declared she would not raise rates, not raise rates at even 6.5% unemployment or at any level of employment, the sad fact is she NEVER will raise rates to a normal level.

Its great for her employers, the investment banks, the banks and the rich, but it does do one thing or a hell of a lot of them.

I was resigned despite sounding stupid at 1,800 talking of a 2,000- S+P we have been there and all fueled by zero rates.

USA GDP growth if one believes the latest print is 8 times Australia. We both have identical unemployment rates and CPI if again you believe the USA side. Difference being our rates at 2.5% and the USA will sit at zero till hell freezes over.

Too many vested interest there and for the goverment in 2000 paying 6.2% on its debt vs the official cost in 2014 of 2% is one. If one takes OFF the 79 billion the Fed paid the USA treasury their cost of funds is under 1% !!

As some of my other weirdo predictions late 2013 one about USA unemployment falling to near 6% again is also true and whilst there is some HOT AIR in the media about Yellen wanting some consensus, she was the architect and most vocal supporter of low rates under Bernanke so don't expect anything to happen anytime soon. It will eventually.

One cannot cripple two investment classes without massive distortions and destruction of others. Cash deposits and Bonds are returning the lowest levels in 6,000- years. Anyone saving is having their savings in the USA destroyed in real terms via a normal holding of a balanced portfolio holding 40% or so of cash and bonds. Its too late to join the band wagon and the gate already closed in about 2009 on these forms of investments.

What however it has done is destroyed totally USA pensions savings vs a demographic time bomb as the life increase from someone in 1900 living till age 50 and even in 1947 only till age 55, ots Now 80. USA knows this as does every other nation on the planet. SO if life expectancy rose 25 years between say 1947 and 1960 and the percentage of people over age 65 was around 10% for most of the 1947-2000 period only rising slightly at the end, where will this hit ?

NEVER for the USA. In reality as someone born 1947 retires age 65 in 2012 the baby boomers hit in such a massive way IN EVERY nation over the next 20-30 years, but the USA and their criminal economic numbers and estimates its now 14% over age 65 and never rises above 19.7% ever. Japan by 2055 will hit 38% over age 65, Germany 34.5%. So if you have a budget prepared with a lie and a fable in it, where the hell does it take hold ?

I have no idea.

Making matters even worse, companies on the S+P 500 just hit 1.76 trillion underfunded for their employees pensions. Thats 100% of a full years profits. Even if the decided to contribute, something that is illegal NOT to do in 140 out of 141 nations, they would need to devote around 15% of all income to keep up and repair the damage over a 20 year period.

Again an aside.

USA budget numbers came out and last year debt increased by 1 trillion, but officially the USA budget deficit only went up 580 billion. As to the unfunded contingent liabilities. Again using absurd and I mean absurd estimates it was in 2013 a sum of 211 trillion. I am please to announce that officially in 2013 this unfunded side ... one that claims payments for old age pensions or healthcare WILL NOT RISE as a percentage of GDP despite even their insane prediction the numbers only rise 50% v a reality of 100%, in 2013 how much did the USA unfunded side rise ?

11.6 trillion.

that's 66.6666% of the GDP of the USA.

The official number is well over 10 times the GDP of the USA. A realistic estimate and being honest about costs and obligations I suspect the contingent liabilities are in fact 50-75 trillion MORE than these estimates.

But for now, its all to be ignored. The disability pension fund Mr Lew estimated would last till 2024 in 2012, its now going broke in 2016, actually 2015.

But yep lets all rally. I find it surreal to say the least, as Burger King moves its head office to Canada, saves a billion in tax, McDonald's is thinking of buying a hot dog vendor in Switzerland and paying a mere 8.5% tax there vs the headline rate of 35% in the USA. Of course neither of these two pay even close to that sum. Nothing like having to buy your paper product from some tax haven at 5 times cost and the tax haven which doesn't even have a Burger King Store racks up a massive profit to the benifit of the shareholders.


Fed released another statistic or series of them on share ownership over the last week in the USA. In terms of direct ownership of shares it has fallen to its lowest level in 30 years at 14%. What amazed me was the rest, the top 10% of people, of them 93.3% have direct ownership. Going back the other way, it means the 90% REST of America only 5% of them OWN any shares directly.

That to me is stunning.

In terms of indirect or direct ownership either via pension funds or anything else, we have 48.4% of Americans with ownership. Funny thing is that the top 20% have a 95% ownership of shares either directly or indirectly. So the next 10% almost without fail have great holdings of pension plans or whatever. Again going back the other way, of the 80% of adults left only 29% of them seem to have some form of a pension plan. There have been studies on this and for the lower 60% they seem to have $30,000- in retirement savings as an average and the bottom 20% virtually none.

I cant change facts. Fact is we live till we are 80, or if we hit 65 likely we live till age 85. USA has a plan, kind of like Martin Luther King and his "I have a Dream" well the plan is to erode the pensions run by the goverment and take them from $20,000- a year as they were in 1995 and now in 2014 at $15,000- but take them to hell at $10,000- a year. This years adjustment for cost of living was 1%, CPI is 2.2% in the USA and cost of living which is higher is around 3%. So by 2035 they will have 85 million over 65 Americans on $193- a week and for the lower 80%, their accumulated savings will last maybe 2-3 years to compensate. Those sadly in the bottom 40% will enjoy I am sure 20 years in poverty.

Lucky Billy Bob and Sue Ellen like many Americans have their gun collection. Billy Bob a vietnam Vet and working for the city .... pick one ... Chicago, Detroit, New York, is about to also take a haircut on his other pension as its going broke thanks to Yellen and her policy of zero rates forever.

All of this actually is for the benefit of whom ? If the people outside the top 20% hold less than 3% of the total share equitiy I am actually scratching my head and counting my blessings I live in Australia. Ownership here is actually one of the best spreads in the world with the lower 80% owning 40% of the assets. One is of course 10 times the other.

But for now, Janet will deny it all. She believes her policy will work when the fact is that well over 90% of all the wealth is owned by the top 10% in the USA.

Strange world. Nothing new other than the new budget numbers which were shocking ... but no one cares. Whomever gets the next presidency is in for one hell of a ride. This is an issue that DWARVES any GFC one. The GFC in reality did about 15 trillion worth of damage, that to be blunt is about how much the promises which NEVER be paid for will go up in the USA next year.

I do have some thoughts on tax inversion and the whole thing but ... with rates at zero forever, its really a wank watching the USA markets for now. IF you use an internal rate of return of 10% any cash-flow beyond 20 years is worthless. If you use one at 5% its still has massive value. If your stupid enough to use one below 8% .... and say at 2%, some mythical cash-flow in year 50 is still worth over 30%. It basically cases exponential valuations if allowed. Of course only an idiot does this, but Janet is an idiot.

It is similar to the pre GFC commodity boom. Many thought oil would fall after its initial rise. Sadly since not much new production had been implemented for 20 years and OPEC was able to swamp the market, the cost of new wells was basically under estimated. Other side, Idiot analysts at brokers estiamted either way too high prices for the commodity going forward, but worse was the ones which still had a $20- barrel of oil as it hit $100-. The new production cost and still costs about $60- a barrel and with a profit margin for RISK that means they need a $85- barrel of oil spot price to go ahead. Same goes for all the other commodities. What was missing was the new production costs were estimated at insane and absurd LOW levels and quite often the cost turned out to be 3 times what these idiots thought.

I do wonder, since no one really cares in the USA other than the top 20% do they go more insane ? I sadly think not. The fact that underfunded pension plans need serious cash in the next 2-3 years and for the next 20 years will shave profits. The Tax inversion has to end, nations everywhere cannot afford to have corporates using tax havens ad NOT paying any bloody tax. In Austrlaia its not a massive issue but still 1.5% or so of GDP is missing from goverment revenues. In the USA its 2.25% and to top that off another 2% is missing in income tax from the UBER rich. Whilst they are paying record amounts, its the percentage that matters and paying 8-10% LESS tax is insane if you wish to ever have a hope of caring for your elderly.

Enough rambling from me .... as I come across more and more facts, the story changes and eventually there is of course only one fiscal outcome for the USA. Australia, UK even the EU at a 40% tax to GDP v USA at a mere 27% says one part of it. Australia with a very young Super scheme, less than 25 years old has 130% of GDP in savings, USA with one 80 years old the Social Security one has 15% of GDP. In effect BOTH are there to do the same thing, provide income for elderly. By the time the elderly become a massive issue I suspect super savings In Australia will be 250-300% of GDP, USA its hitting now and apparently its not an issue.

THE long term future for this scam is clear, in the meantime where or what the USA does is the question ? A doubling of the minimum wage in 2015 would be a start. its been at $7.25 for nearly 25 years !! Stop and make Tax inversion illegal another one and get rid of the tax breaks in the USA for the rich. None of them likely as the goverment is elected by these people in the USA, the very rich or the corporates and Billy Bob and his Wife are the furthermost thing from their minds. YEllen has to stop killing two forms of investment because if one does that and goes against 6,000- years of the history of money and penalize people for lending and give them ZERO return for saving and force them into a ponzi scheme ... well 1929 didn't even have HALF these factors to deal with. Just an absurd overvaluation. Schillers CAPE index is at 1929 levels, if one MADE corporates pay correct tax, not avoid it in the USA, pay superannuation and have to pay 2-3% MORE to borrow as the RISK is greater than they are paying, the profits would HALVE .

The CAPE index would be DOUBLE where it is. Since Goldman Sachs designed this mess via Paulson and his Goldmans staff at USA Treasury and Lew with again the same staff or similar, how does a CAPE index at 57 sound like when the peak in 1929 on the cape index was a mere 32 ... NOT 54. Again a fact, USA corporates are paying tax at 13.22% vs 27% in 2000. The underfunding of their pension plans is criminal but legal ....

Take care
Mark


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## kahuna1 (2 January 2015)

Ho Ho Hum...

Merry Christmas to all. Hope you had a great one and Santa was good ??

Happy new year as well.

The beat goes ON ... and ON.

Zero forever. Its the theme and whilst there may be SOME cosmetic change out of the USA the underlying economy is disturbing as hell. Numbers, as usual total rubbish. What was that GDP number ? Over 5% and even staid commentators were scratching their heads.

To point out the bloody obvious, Oil is below $60- a barrel. A lot of the GDP growth last few years has actually been from Oil Shale in the USA. Its basically taken it in the neck, with a BREAK EVEN cost of production of $65= they are all operating at a loss !! All of them. Far different to the over $100- level not so long ago. THIS HAS YET to be seen in the GDP numbers, a halving of the value of the NEW oil production. As per normal they are using totally bogus numbers ... and since its prepared at the BEA now run by Yellens personal Economist from the US Fed in San Fran when she was there now running the BEA ... don't expect any reality to ever emerge.

If asset price rises equation to growth ... fine ... the US stock market has risen 30% last year and 10% this year. No bubbles in sight .... must get my eyes checked )

As I type USA debt over 18 trillion, the Disability pension scheme totally broke and by 2030 will have another 20 million over 65's on disability as opposed to social security and with healthcare for disabled at DOUBLE even the over 65 numbers, time will slowly griund the fiscal side to paste.

Then again no one cares. EU sorts it all out ... USA ignores it.

EU with bond rates crashing there, as expected, the Fiscal pressure on many governments willl ease by a LOT. When Italy and Spain can borrow for LESS than the USA as NOW is the case, the bond market has NOT totally lost the plot.

Expect EU companies especially those domiciled in Spain and Italy to benefit in the next 12 months being able to NOW in late 2014 borrow for 3-4% less than they could in 2012. It is massive.

Obama ... ignore him. Jed or is it Jeb Bush throwing his hat in the ring .... HIDE .... the longer term fiscal outlook for the USA is diabolical in the extreme. The estimates ... all budget offices inhabited by cretins in the USA, all Goldman Sachs hand picked .... all have orange hair and albino eyes and all come from the same economic club that gave us the 2000 fiasco ... the GFC and the S+L crisis prior to that.

Simple stuff, if you have promised free healthcare for over 65's at a cost of about $17,000 a year, have to pay pensions at $15,000- a year .. and then have 100 million over 65's by 2040 .... the cost each year is in real terms 3.2 trillion. thats 100% of all tax collected NOW.

Instead of having 50 trillion in Social Security for this event ... in savings, there is 2 trillion and falling ...

Corporates in the USA avoid tax ... and the tax paid is 17% on profits vs 27% in 2000. This number is falling and falling rapidly.
The rich who should pay 39.2% overall in tax and Medicare, the top 10% pay at 19% down from 29% in 2000.

The progressive nature of the tax system is gone. Someone on $100,000- is likely paying 30% tax and Buffett in 2014 paid 17.8% tax. He of course would be stupid to pay any more tax than he should, but the system is utterly corrupt with bogus forward estimates based on total BS.

Timing ? Its still peculating along. Everyone turning a blind eye to it. Media is paid by ? Advertising .... Buerocrat in the USA make the $3,000- bottle of wine the NSW premier resigned over look like a joke. Bernanke at the Brookings institute funded by Goldman Sachs and his ex roommate from Harvard .... Finkle stein has him on a million dollars for life and in 2014 he earn t over $4 million on speaking tours ... at $240,000- for an hour. Yellen ... her husband same sort of job ... other side of the nation. As I said a little club with Orange Hair, chant at the moon, believe the earth is flat and we ... non members of the club are stupid.

Sad but eventually ... no matter what the fiscal numbers get worse and worse for the USA.

As to job gains over there, its amazing ... jobs being shed in the $50,000- range replaced with new ones .... Under $30,000- a year ones and the 53.3% the year started with that's 53.3% of ALL full time USA employees earning UNDER $30,000- and the avergae of them is actually $20,700 what they earn t ... minus 6.4% Social Security Minus tax at 15% minus 2.9% for medicare ... that leaves them with under $300- a week for a 38 hour week. Anyhow, what is amazing is the GROWTH in 2014 of these Low wage jobs. Maybe they should move to Mexico or China for a better standard of living ?

Enough on the USA. Spoke to the top LIC company in Australia chief .... as I always do. We both agree at some stage the wheels will fall off. Not sure when, but he like I see's something OVER the GFC in terms of correction for the USA. Thats over 50% and somewhere between 50 and 80% which was 1929.

Anyhow, since we like in most things are insulated in Australia and NZ ... we would need to be at 9,680 on the ASX 200 to be where the USA is now. In other words the close at 5,411 ... we need to RISE 79% to catch the stupidity of the US markets.

I am stunned ... it was BAD at 65% ... but nope lets go some more. USA has its interest rates despite this at ZERO. All so Goldman and CEO's can borrow and buy back the shares they issued in the GFC at 3 times the price and drive their EPS up.

USA if its has 5% GDP growth nearly double ours, an unemployment rate nearly 1% below ours ... running a deficit 150% the size of ours relative to GDP .... WHY ? Are they mad ? No just utterly corrupt.

Sad.

Meanwhile our rates at 2.5% ... things slowing down and stuck here at 2.5% for what seems decades the bias is to lower the rates.
The RBA still wants the AUD lower, obviously Iron ore and Oil via the LNG projects coming on line impacted the currency but the very big LNG plants as yet to start exporting which will DOUBLE the size of LNG exported and as such I still find it hard to be too bearish. Of course, OPEC and oil below $60- a barrel is going to totally STOP any new wells being drilled. Exploration ZERO ... so what occurred in 2002 when demand exceeded supply will occur again ... may take a few years, but the LNG plant life and size is 20-40 years. Eventually wells dry up and need replacing, Demand whilst slow is growing at just under 1% and whilst some oversupply in 2014, eventually a few fields running dry and NOT replaced and hey presto we have another commodity cycle. Not now mind you .... lots of dead bodies out there in the Iron ore sector and oil. Think FMG is fine, its already done what it said it would and as such the unit cost of production is falling. High cost producers.... forget them ... they right now at these prices are worthless ... totally worthless.

Its like that thing ... Uranium and the utterly worthless PDN ... Palladin in 2000 ... as the price crept up and up the share suddenly became worth something. That the cost of NEW production was about 150% MORE than expected and the fact that the company was a great PR hub helped, but a price over $10- from 2 cents and then back again to ... 30 cents. Nice ride .... but this is the future. For now, oil ... iron ore ... ho hum but buy on dips for quality. I might add I no longer like BHP or RIO .... idiots adding 200 MT production to iron ore post 2013 when if they had done it in 2008 or even 2006 .... whilst Iron ore would have NOT risen as high the price received at say even $100 a ton v one much much lower, if your making $50- a ton or 100% OVER cost 0of production its a good thing.

On the USA side, Yellen I must say has stacked the voting members in 2015 for the US fed. All are DOVES. Expecting anything other than hot air out of this penguin about rates in 2015 is what I expect. The vocal Fisher, again Orange hair but at least vocal from the Dallas fed about raising rates and asset inflation and bubbles has been removed. This of course is not the other Orange haired albino Fisher ... Yellens deputy and Bernankes MIT professor when he got his PHD. Why did they give any of these clowns PHD's ? Anyhow all dissent on the USA Fed has been replaced with DOVES.

China still going. Doomsdayers as always. I don't agree with them mind you. Simple stuff, the Chinese economy is DOUBLE the size it was in 2006. So a GDP growth of 6% in 2015 is 12% in 2006. That said, they have played the commodity game well again as they did during the GFC. All buying of anything stopped. It is often forgotten the Chinese is a centrally run system and Communist. When the head honcho calls you and says stop buying .... or have a vacation in a prison camp and we will make you an organ donor ... buying tends to stop. In the GFC, as the US dollar initially crashed, oil spiked to $150 or close, up there my comment was things will implode. USA was clearly into the GFC already. So less than 6 months latter, the US dollar rallied as assets were taken back home and the oil price crashed as people ... in particular the Chinese were told to use stockpiles. OIl went near $30- and again same comment as today, down there NO new production would happen. Eventually as oil wells run out ... no replacements occur and demand keeps creeping up, the price bounced. Still think about the same. Oil really needs to be in the $100 sort of range plus or minus $20- so enjoy it down here for now. Sadly any new production is going to be either via deep offshore drilling, EXPENSIVE, or unconventional means and again EXPENSIVE, and if your absolute break even is $65 a barrel, ther ehas to be a good margin for PROFIT and RISK.

This I suppose is what is missing in the USA, UK and German markets. RISK. Apparently there is no risk. Here in say Australia we get 5% dividends franked as well. There is Still a risk premium in there. TLS the most hated stock of 2010-11 at $2.55 when that idiot Costello sold the Future funds shares .... at the lows .... 28 cents fully franked ... NBN deal a great one for them ... heads they win ... tails they win ... a fully franked dividend was over 10% ... or 14% if you took into account the franking. Of course , now in 2014 its DOUBLE the price and in the meantime ... got paid over $1- to hold a $3- share and got another 30 cents in franking credits !! Oh I love it.

Fiscally Australia not too worried. Sure the LNG price will be low initially, but unless people like the dark .... or we are not going to use energy it will over time recover. May be a few years mind you. Same for Iron ore .... unless China and eventually India decide they like building without steel.

I note the STUPIDITY of the government right now. Being blunt, Both parties did very well in the past 20 years. The GFC was not made here. We are one of the lowest Debt to GDP nations around. the NET debt is about 20% of GDP. USA at 110% and rising.

So what is this rush to balance the budget ? Idiotic in the extreme. If inflation is 2% and GDP growth is 2.5%, THE ECONOMY IN RAW TERMS .... in dollar terms rises by 4.5%. So to maintain 20% NET debt to GDP we could run a deficit of 4.5% each year !!

We are running one of 2.5% of GDP so in REAL and actual terms our DEBT to GDP ratio is FALLING. Not by much, but over 10 years its still falling. To balance the budget, which is one way to slow an economy which the USA and most of the world has forgotten ... your making the NET debt fall quicker say by about 5% a year. So the NET debt of 20% goes to 19% then 18,17,16 and so on.

Next time I hear someone comment about reducing the debt and so on, I will actually vomit ... whoops just did> I have no idea what this Liberal fixation is with it. I am NOT suggesting willy nilly spending as we saw post GFC ... but compared to most nations and despite some idiotic schemes ours was very restrained to say the least. Not perfect and very far from it.

Sadly right now virtualy every group I could name is annoyed with the current government. YES I want fiscal restraint, I dont want the debt size to get much larger unless we see a GFC or 1929 type event, but to immediately want it back to zero ? Over time it will get there anyhow !!!

I would very much prefer the governments focus to be on the likes of Apple which paid us 1.9% on profits and stole 700 million in tax on the 6 billion sales it had in 2014. Same too for the Swiss based miners, tell them all to get stuffed and the missing 1-1.5% of GDP stolen out of the government coffers amounts to 2 billion a year. Not massive, but much needed. EU I suspect acts in 2015 and eventually the USA is forced to face the fact its been stolen from itself with a corporate tax rate of 35% ... but no one pays it. The bankers have tax haven after tax haven and 3,000 offshore companies for one of the larger US banks in tax havens is a reality. Paying a mere 17% likely falling to 15% 3when the corporate tax rate is 35% is a joke. Then again it was and is state sponsored theft in the case of the multinationals like Apple ... the US law enables them to do anything they like and despite declaring a 25% margin on sales in 2013, and Australia paying 10% MORE for goods even allowing for GST, according to Apple on its 6 billion Australian sales it deemed it would pay 1.9% tax on it. NOt the 30%. I vote send them a tax bill with 100% penalties.

Same old same old.

For now, Obama in 2015 .... nothing changes. Yellen ... more hot air. Jack Lew USA treasury secretary and in charge of Social Security the lies he is going to have to tell ... get bigger and bigger ... but if you have Orange Hair and believe the world is flat and are Albino its all ok.

Predictions ? Ho hum ... made a few in there. EU numbers, which are close to reality improve in 2015 via much lower funding costs. Australia same old same old. We are slowing .... worried about the govt. Never seen a landslide election win reversed in one term but its looking like that. Commodities .... maybe even lower, but long term unless you like walking ... dont use electricity and build with straw eventually they rise over time, maybe not 2015. The Chinese have done it very well.

Other large population nations really struggling ... Brazil double whammy via iron ore and oil, Nigeria the same, Indonesia going backwards, India ... well I wish they could get their act going but as always a political nightmare and corruption even puts the USA to shame. In the USA congress votes 99% of the time based upon donations and the money and with the 2016 election looming dont expect anything there.

I was amazed to see the BLS which does the USA CPI numbers and after many hours digging according to them their housing index which makes up 23% of the CPI the fact that New York prices are the same as they were in 2004 astounds me. Same for San Fran. Both hit record highs 110% of even 2006 GFC peaks and DOUBLE the 2006 index numbers both for rent and cost of a house.

Meanwhile Walmart with 1.4 million USA employees on an average of $18,200- FULL TIME so take home is about $290- ? Anyhow Walmart is complaining about some states raising the minimum wage .... eve the one who raised it to $7.55 an hour !! Sadly if correctly adjusted for cost of living it should be $15- an hour. the normal floor person there gets SUB $8- an hour ... mangers a bit better at $10-. Kind of freaks me out McDonalds in the USA the pay is worse and in Australia or the EU the pay is roughly DOUBLE for the same work and same training and same sexy uniforms !!

Enough drivel from me .... with now over 2 trillion in super savings in Australia and a very young scheme of compulsory super v the USA which started in 1935 v 1995 for ours, eventually this number in Australia when its fully mature will have about 300% of GDP in it ... basically what the USA is missing . USA has 2 trillion in it for the baby boomers retiring ... about 15% of GDP, not 45 trillion.
Only way to repair it is ... FIX the mess Greenspan and Bush and the rest fixed and collect about 1 trillion more in tax in the USA.

Not going to happen ... all levels controlled by the rich, or the CEO's or the investment banks.

God I love Australia.

happy new year


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## kahuna1 (20 March 2015)

Howdy,

been watching.

Like most ... like many a lot smarter than I ... we watch and scratch our heads.

Time is always kind to those who are patient and for me ... my mistake ... was actually believing Yellen 2 years ago when she said she would raise interest rate. Yes thats 2 years ago she said ... almost verbatim ... when US Unemployment reaches 6.5% we will begin to raise rates.

Now wind forward 2 years ... she said the exact opposite I kid you not. USA unemployment at the time of Yellens comment was 7.4%, back in 2012. Well aware exactly how the USA was producing its numbers I was of the view that in 2013 USA unemployment not only fell below 6.5% but towards 6% ... exactly what it did.

The excuse for the delay in 2014, is because she is worried about the employment market .... but the unemployment rate in 2015 is at 5.5% ... basically near full employment.

As I said early 2014 when i was clear the USA would not raise rates .... its zero forever.

Not really ... of course at some stage the USA will raise rates. It is a given .... but make NO MISTAKE ... the rise will be very SLOW and very gradual. A lot of reasons for this. US fed holding 4 trillion in bonds is part of it ..... USA Treasury debt hit 18.4 trillion and no one even cares. Each 1% more cost to fund this ... adds 1% to the DEBT and the DEFICIT.

FOr now there is NO real reason to sell. Then again there is EVERY reason to sell. Around 2180, which is not too far from recent highs in the USA S&P 500, its actually at a level that is the peak in the 1929-30 madness. I kid you not. Japan had a similar stupid peak in 1990 and didn't bottom till over 20 years latter at less than 20% of the peak. China pre GFC I was laughing about their index up near 6,000 ... the low ? What was the low ? 1,200 ? about 80% loss.

I took some time to explain how this has been constructed ... this bubble in the USA. All driven by bribes , self interest and greed. When you have the head of the USA Fed who was a room mate of the head of the largest investment bank, Goldman Sachs .... yep room mates or dorm mates at Harvard ... and now he resides at a PRO Goldman think tank on a wage 4 times what he got in the Fed you can see my own skepticism of what is going on. Yellen is no different ... her husband ... despite being senile has a similar job at another Goldman funded think tank at a university.

All of this aside other than to know the heads of budget offices in the USA all share similar links via both having orange hair and being albino ... and interlinked with an utter contempt for people not in the group.

Its sad.

Bottom line it will burst ... as Japan burst .... as the Uranium bubble burst .... as China Burst ... as the Philippine stocks did the same and ... these mealy mouthed totally currupt USA bureaucrats will try and blame someone else ... and then shuffle the chairs and promote each other. Fisher ... the deputy head of the Fed has been lurking around for 20 years and Yellen close to 30.

For me, an amusing and very sad contrast. Demographics, something I went into in great detail about. It seems NOW a massive topic for the current goverment in Australia. I do agree its an issue but not a huge one. Reason being thee normal average working person who has what is likely to be 12% of their salary put away ... by age 65 even the AVERAGE one will be $200,000- in real terms ...

Bottom line we live far longer and instead of 8 people working to support those over age 65 ... this will fall to 2 for some nations. The percentage of those over age 65 will go from 10% to 25% PLUS in most nations ....

USA is in denial on this topic. Only 2 things alter these numbers and they are baby births and immigration. USA has LOWER baby birth rates than Australia and LOWER immigration than Australia on a per capita basis. In fact the immigration side which is crucial to keep the average age DOWN is around 30% of Australia. Despite this, these Orange haired Alibino's, a crony club in the USA working for the utterly corrupt rich who wish to pay no tax, actually deny the USA will have its over 65's ever rise.

This is an insult to every idiot who owns a USA treasury bond. The same to any idiot who is long US dollars. USA claims despite this that its over 65 population will never rise above 23% even in 2060. Meanwhile the USA disability pension fund went broke 23 years early from the 2006 estimate ... instead of having $200,000- PLUS in real terms 2015 dollars for the 100 million baby boomers in Social Security for their retirement ... that's about 200 trillion ... its all gone. Spent .... and the forward estimate despite needing to pay some pension to these people is that in the USA some plague hits and they don't live to age 85 .... but mostly pass away at age 70.

This is the slow ticking time bomb in the background ... that of cou8rse no one cares about. For now.

Its funny for me to see people buying assets in the USA ... property at 2% yields in the belief that they can improve occupancy and maybe get a 4% yield. Sadly ... this is what ZERO rates do to perception. There is RISK in everything, but for now its been priced out and priced to absurdity ... very much TULIP time in the world. I do understand that APPLE is able to pay zero tax here STEAL close to 1 billion a year in tax from Australia and stash it in the Irish tax haven and the government lacks the balls to take this and many other clowns on. Its clear the USA will provide an amnesty to these companies and they can bring the stolen money back at a massive discount tax rate. Likely 12% , v our tax rate at 30% and the USA's own corporate tax rate at 35% ....

Insanity ... which as the pressure on government doubles with twice as many elderly than say 1990 ... this cant go on the theft of 2-3% of GDP from every nation besides the USA from the likes of Apple and Google and GE and every other one of them.

In the end, I have no idea the catalyst of the correction but myself and several other massive fund managers are of the same opinion that we are more than likely to see a correction in coming years of a greater magnitude than the GFC which was a 50% correction.

Only time will tell and happy to be doing other stuff ....

I suppose I look at some sectors which I hate most of the time .... Airlines, Telco's and Technology. In many ways very tough business's and Qantas not so long ago over $8- ... before going to hell ... Telstra in 2000 I sold from memory at $9.40 or $9.60 and didn't like it till sub $3.30 ... and when that idiot Costello and the future fund exited at $2.60 it was a gift. A idiot giving away a fully franked 28 cent dividend ... 10% ... with franking credits ... 14% ...

Now ... $6.50 .... its over DOUBLE the lows. Whilst it appears a good deal for those chasing yield or income in this low interest rate market .... RISK ... Underlying risk is always there. In total dot com madness TLS got near $10 .... and lost 75%. The $10- high was a 1929 event ... 1990 at 40,000 in the Nikkei for Japan or 6,000- on the Chinese index Pre GFC ....

Its hard ever to see any correction when its at its peak. When say PDN and the Uranium minnows were priced 100 times where they are now .... it was impossible for anyone to ever conceive that it was a ponzi scheme ....

In the end, the very end of this .... which for the USA may be 2020 ... the numbers of the baby boomers is KNOWN and a fact. Their demand and needs to survive are known ... so too the healthcare costs. As much as in Australia ... the Liberals YES do have a point about changing the system .... we are talking about tweaking it 5% .... TWEAKING 5% here and there. The USA is in an utter state of total and complete denial.

Nothing speaks louder than bribes. The utterly corrupt and I say this with contempt for the USA both politicians and bureaucrats, they sadly will bring about another great depression, or at best massive upheaval. So far they have about 1% in jail .... 3% with records of incarceration. Walmart, Target meanwhile raised their minimum wage ton $9- an hour.

If you believe ... working casual ... NO loading please ... we are from the USA ... so $360- a week pre Tax PRE Social Security ..... thats for a 40 hour week which you get 1 weeks paid holiday a year ... post tax and social security you get $323.40 ...

Can you pay the $1,200 rent for your family a month even with 2 working ? Can you afford a car ?

The great Employment surge in the USA is a mixture of NOT counting 9 million people who after 6 months unemployment benefits stop getting them ... and people being laid off from decent jobs say in the $20- plus an hour range to be employed at McDonalds as a slave on $323.40 a week. With no saving for the elderly ... and them about to hit 25% plus in coming years ... not 18% as the USA claims out to 2045 .... and an increased amount on slave wages .... who will be the USA consumer.

Eventually ... Bill Bob ... who served in Vietnam ... and Sally Mae his wife working both of them for minimum wage for 40 years, when they work out between them instead of being paid $30,000- or so a year its going to be $20,000- ... the sad fact is that both of them having worked alread very hard in manual jobs for 40 years have no ability to work .... beyond age 65. So too many others, but without debate ... or discussion the Orange haired Albino's in the USA have Not told Billy Bob or Sallie Mae their working life of misery is to be followed by old age in abject poverty. Nothing like pissing off the masses.

This I contrast with people in Australia squealing about possible changes to super and retirement ages. In the USA, with a BIGGER problem due to ZERO super savings in the Social Security pot v ours which will be 300% of GDP when its fully mature ... the USA is either correct and we are stupid along with 30 EU nations, Japan and many many others. Who is right ? Will we live till age 85 if we hit age 65 ? Is it possible that life expectancy even increases over the next 30 years ?

USA very clearly has it DECREASING in their budget estimates ... all so Goldman Sachs can pay no tax and their cretins buy a new red Ferrari each year. So Ben Bernanke can take his bribes .... speak to rooms for 30 minutes for 50% of his salary for a year as the head of the USA Fed. Seriously there is NOTHING that person could say worth that.

It is a a question of who, or whom you believe ?

Whilst I NEVER try and under estimate stupidity, In some cases you must. Its only prudent. If s0omething has already gone over the cliff, and whilts you know with 100% certainty it will be taken by the force of gravity eventually, if its being propped up, for now by hot air and in fact, despite going over the fiscal cliff the bloody train is rising, its just going to make the eventual fall even more spectacular.

When ? I don't KNOW ... and in the future the interest side will be the catalyst. Eventually the EU may grow some balls and demand the stolen tax as we should and APPLES real profit will halve. Eventually the EU and Australia will send the IMF and WORLD bank packing and tell them to treat the USA the same as US. Imagine the IMF lecturing Australia with NET 15% debt to GDP and ignoring the USA with a Debt to GDP of 105% and rising. Imagining ignoring the Forward estimates of the USA budget wise are FICTIONS and in fact 2010 estimates fell 5 trillion SHORT of the AMOUNT of debt they now have .... YES forward estiamtes are diffcult ... but since 2011 and 2012 budgets were already approived at that time ... how the hell can the deficit be 30% of GDP over 5 years an no one blink ?

Obama, Bernanke, Yellen, Fisher, Greenspan, ELMENDORF and a long list of similar orange haired cretins from ivy league schools and direct connections to the money pot .... and on the take ... of course no one notices the USA deficit at 18 trillion instead of the 2010 estimate ... I just looked at the 2015 estimate and it was 12 trillion ..... so I was being nice. What happened did they miss 6.5 trillion ?

Meanwhile we have oil ... below the cost of any new supply ... half of current production is making it for a loss .... but the market of course marches on ... NO risk .... unless your the dummy who lent to Oil shale in the USA. Iron Ore ... BHP and RIO splash an oversupplied market with even more supply and cost themselves 50 billion at least as the price drops. For that number, these idiots could have bought their competitors ... PUT say FMG into mothballs and taken 150 million tons of supply out of the equation for about 10% at what its cost BHP and RIO ... let alone all the others in the market.

Predicting stupidity ..... is a loosing game .... actually calling the commodity price BELOW the marginal cost of production for about 50% of the market is ... impossible to do ... but nothing new. This claim by some it was easy to see ... defies common sense. Why the hell would a company be so stupid so as to cost itself $10 billion income a year ... because that's exactly what the BHP and RIO team did at 200 million tons of Iron Ore production and taking a mildly over supplied market and adding another 10% supply ? What happens. ....


Must run, just saw a dog chasing its tail .... it would be stupid for me to estimate when its going to stop .... but I know it eventually will. Patience is as always an advantage.

Timing on any correction ? No Idea. Maybe the pandemic the USA budget numbers have in them for their elderly will occur.

Oh and of course this is about the USA more than Australia. We however have been hit by massive moves in commodity prices for the bulk items. Long term ... they are FINITE and if BHPO wants to DUMP a finite resource onto an already oversupplied market along with RIO and Rhinehart .... I am of the actual opinion that they should be restrained .... but then again I have lots of silly ideas. In 100 years, when the current resources are gone .... people I am sure will look back.


Take Care


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## kahuna1 (20 January 2016)

Hi,

took a while ... it is long ... nothing much new ... 

TIN HAT DAY NUMBER 3

take care

Mark M


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## satanoperca (20 January 2016)

kahuna1 said:


> Hi,
> Australian side, well that we are compared and lectured like someone with
> 100% debt to GDP when ours may hit 18% in 2017, speaks for itself.
> took a while ... it is long ... nothing much new ...
> ...




Interesting read, just one question.

You refer throughout the article to 



> Australian side, well that we are compared and lectured like someone with
> 100% debt to GDP when ours may hit 18% in 2017, speaks for itself.




But you don't seem to discuss private debt to GDP. While our govnuts debt seems to be reasonable, it is our private debt that seems to be out of control.

Looking forward to hearing your opinion.


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## kahuna1 (21 January 2016)

Howdy,

talk about instant gratification. The USA overnight had a shocker and then the magic rally !!

The low I talked about holding, and one I prattled about being one of those barriers … invisible to most but still there at 1,810 on the S+P 500 …. the low for cash last night ? 1,811 and then it rallied 3% … low for futures around the 1,805 mark.

I made a typo on the TIN HAT day #3 about the top levels … sure most saw it …  about 6 major ones … all of them are in the 2,111-2,139 … with 5 of the 6 in the 2,122-2,139 range … where the market stopped.

From here ? I feel you know my longer term views … short term if they are true to form a rally and all is well will occur as it does in the USA and back up not to the highs but the 2,040-50 range for the S+P 500. Risk is UP v Down until the 1,810 breaks which it tried and spat it back and rallied.

Was asked about debt, personal debt.
Well GFC saw USA loose massive amounts of home-owners who just walked away from their loans and as such home ownership there is at 30 year lows. Along with this the debt to for the consumer fell from near 100% of GDP to a mere 82%.

Australia HAS high debt to GDP on the personal side. It also has many other things. USA net wealth and Australia are about the same, depends on the currency level. But the difference and a massive one is that the average wealth lets say of close to $400,000- in Australia is closely followed by MEDIAN wealth being around $300,000-.

USA on the other hand, has a median Wealth of $100,000- , that is the MIDDLE person has 33% of the assets the middle person in Australia has.

I know the IMF and OECD have tried this pony on Australia, but again its a form of bloody terrorism !! Wealth in the USA is NOT spread, as such GFC hits and we have people with NO backing equity owning houses with NO income and in some cases no documentation. 

If we look at MEDIAN net debt to GDP and that being more relevant than the crap these people push on us, we find the median person has assets NET assets of $300,000- and YES the debt may be $60,000- so overall assets are $360,000- MINUS $60,000- in debt the ratio is for a banker and anyone with a brain, which I assure you the IMF does not have is a ratio of 6/1. USA GFC time it was loans to people that were even below the median wealth and NET had no assets that caused so much pain. Asset values go up … they go down … but the issue is LEVERAGE.

In this we have someone owning Super say worth $200,000- a house worth $800,000- but a mortgage of $200,000-.  Net assets in this case are $800,000-. Basically the size of the mortgage. Overall many don’t have this type of debt and the Average … quite different from the median in most cases … I am using the MEDIAN as its harsher and the MEDIAN Australian has a loan for $60,000- assets Gross at $360,000- or 6 times that. USA even now, median at $100,000- so gross assets at $150,000- and a loan for $50,000-. So the ratio and safety net …. in the USA is 3 times for the median person. Not 6 ….. bloody 3 …..

Is there anything to worry about here ? Yes and no. Sydney prices and the debt levels are much MORE … but banks are not fools and APRA just tightened the screws AGAIN … on what banks can do and if you noted, our banks yet again raised MORE capital.

In the USA for instance, the banks capital at times I have big issues with. Super for their employee's is managed and held by the bank and the benevolent USA Fed, owned by said banks, said USA banks can take and use the SUPER of their employee's and count that as capital. In most cases it makes up 20% of the RESERVES as the USA Fed calls them of any bank.

Again, I come back to idiotic asset prices in the USA for commercial properties and I gave the example of NY Manhattan prices but much the same rise has been seen in all 5 boroughs of NY and that’s massive. Any repayment pain inflicted by moving rates from all time artificial lows of 3% to 5% in any bank test is actually compared with a straight face to our banks being tested for 3% NOT 2% and the 3% started on home loans at 6% …. to see how banks would cope and borrowers at 9%.

Comparing an apple to a pineapple is why the IMF head when invited to functions here should be seated in daycare centre with the children. The stress tests conducted on EU banks were similar to our own and much more rigorous than the joke that happened at USA banks. Kind of expect it when the person conducting the tests is owned by said banks.

Anyhow, for me … personal … state debts … not an issue overall. Do feel we need to go to 12% super mind you …. but we are planning that anyhow.

Take care 

Mark 

PS … the Pub … the correct one in Walgett will be obvious when you arrive. Either way the guide picture is on page one of the PDF.


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## tinhat (22 January 2016)

kahuna1 said:


> Hi,
> 
> took a while ... it is long ... nothing much new ...
> 
> ...




Hey - that's my old avatar. Which I think I will reinstate.


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## satanoperca (23 January 2016)

Thanks for the update on private debt.


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## kahuna1 (20 November 2016)

Hi,

its time ...

but will take a while to write it.

Welcome to the new world. Revolution occurred ....   people desperate for change /// polarized voting and voted for the one person or candidate who already has said he will NOT do three simple things and the ONLY things that will help.

He in fact said the opposite in most cases to what is desperately needed.

And those three things are ?  

Nothing new from me ...they are the only solution and they just sadly voted the one candidate in that utterly assures the poor of no change.

Back in a week or two with the novel.

Most if not many have any idea what happened and why ... especially in the USA.

It is with great regret USA now fighting what is a bush-fire and all poor people desperate for change ctuall elected a madman who believe putting more petrol on the fire will work  ...

I pray for vision but sadly the line has been cast.

Cheers back in Dec


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## So_Cynical (20 November 2016)

Meanwhile.

Talk at APEC about going on without the US, an APEC free/trade agreement without them.

Perhaps all is not lost, the time perhaps has come for Chinese leadership...cant believe im saying that.


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## kahuna1 (30 December 2016)

Hi,

no sorry for the delay ... this will be  a while. About a month ... end Jan 2017
Don't worry ... whilst a stopping point on the S+P 500  at recent highs and a serious one .... *that I doubt will be the high*. My computer model, the pure technical mechanical one puts the chances of the recent S&P 500 high ... all time high on the USA markets being one of any significance at less than 15% chance ... me ... and this is opinion based upon other factors,other fundamental computer value models .... rates the chances at less than 1%.

I do know what my models are telling me the likely high will be and *its miles away.*

Yes I know Janet raised rates ... second time in a decade ...

her threatening 3 more rises in 2017 ? Yeah and she will pay 0.75% MORE interest on 4 trillion in bonds she needs to fund.
Nope no rush ... Trump looks like a winner ...

My issues are massive .... NOT NEW ... history goes back a long way ... but to get perspective ... as MAGS said I am having trouble.

Whilst doing well and slowly our market plays a bit of catch up ... I feel like when I went long Uranium stocks very briefly .... in and out for a big gain ... but knowing the end result would be what it was.

FACTS are hard to come by .... FAKE NEWS ... FAKE this fake that ... I note with amusement and a degree of sadness I cannot even begin to share that two poverty studies came out recently .... both USED fake statistics and still USA came 8/9 or 10 out of 10 .... for both of them. IF the actual numbers were used .... and they are NOT hard to bloody find ... FACTUAL NUMBERS .. America ... CAME 11TH IN A 10 HORSE RACE.

A very clear picture of the plan is and was fairly clear .... sadly ... any economic number reported in the USA is now under the direction of one member of the cabal or another. To rebuild a single number so it represents say what the EU or Germany or Japan or Australia calls say CPI takes 3-4 hours.

I am working my way through them, not crucial to the overall picture .... just want all ducks lined up and backed up via scientific fact before I let this one go.

In 1929 .... my overall value index I built myself ... I called it the Kahuna Index and did share a few years ago ... it got to 273.4% of fair value way back then ....

IN 2000 we didn't get close to that overall ... yes over 200% of fair value ... basically 3 times where it should be trading ... not 4 times ...

In 2007 we topped out the USA at close to the 2000 high in the S+P 500 so allowing for inflation and GDP growth it was about 10% lower ....

Now after 10 years of what I call idiot economists ... climate deniers ... flat earth idiots ... bubble blind dicks ... I wish to congratulate them ... finally ... it looks as though two totally unrelated computer models of mine ... WILL MEET ... YES MEET the old 1929 high in terms of value meets ... 6 different massive technical levels and at the same time ....

Like in 2007 .... at the same time .... the underlying market was evaporating ... and meanwhile back then the BEA was reporting the USA economy grew 4.9% in Q3 2007 .... my comment then was Citibank just went bankrupt .... not technically but actually .... and it was the first of many ...

Here in 2016 .... or 2017 ... I suspect we have a little ways to go ... Trump is full of hot air .... Yellen needs to preside over her third disaster and the first was the S+L crisis and the largest worst lender out of San Fran ... under San Fran Fed president YEllens supervision .... Countrywide .... pre GFC asked if she thought there was a bubble in San Fran prices which had tripled .... she went NO ... asked if she did she a bubble would she raise rates ... he answer was no ... and asked if she had a brain .... she went NO.

I am annoyed with these people ... but for now ... no rush.

Last time I did a set of papers was 2013/14 ... and that was talking about Debt and how the USA Fed if it raised rates in 2014 ... it would be technically broke .. I went on to speak at length about EU bonds and this brewing debt issue .... the conclusion WAS EU was being attacked via proxy ... via the USA and ratings agencies were being controlled and grossly unfair in lowering credit ratings of EU nations which as a group collect 40% of GDP in tax.

In simple terms EU nations all owing around 110% of GDP in debt ... had 40% of GDP coming in each year .... and my view was they had balanced the books ... which is clear in 2017 YES they fixed the leak ... have funded the baby boomers and demographic time bomb ... and as such I thought it was idiotic that Italy with debt to GDP at say 120% income of 40% of GDP had to pay 2.5% MORE than the USA for its debt when the USA ... when measured IGNORING its unfunded pensions .... USA was 100% in debt but only collected 27% overall in taxes and of this a mere 17% is collected federally .... 17% to fund 100% debt .... v Italy 40% to fund 120% ... which is the better risk ...

well stuff me the cat got out of the bag and the world FINALLY woke up to the sad reality and here we have the Yanks now paying more than Italy and even Spain for their debt.

By the time I am finished this paper .... people ... will begin to wonder a bit more. Its sad ... heartbreaking and not a thing I do or say will change anything as per normal.


People do what they wish ... UNTIL they don't.

The time-line is finite and explosive I suspect this time ....

Trump is just a distraction ... no chance he is a solution because ... because ... for the usual reason NO ONE or very few see the actual problem.

That's what happens when you play with Statistics ... you have no idea what is UP or down ... when you do the same with budgets ... pensions and its being done by 50 different self interest lobbying groups ... no one has an idea what they have created.

A mess sadly the understatement of the year on this one.

Back next year ... 2017 ... merry new year ... and by the end of Trumps first 4 years, all 8 million Vietnam Era Veterans will have retired ... of them 2.8 million served actually in Vietnam ....

My mythical couple Billy Bob and Sallie Mae .. salt of the earth types and with a gun collection of 109 guns ... having been told in 2008 their county pensions were cut in half .... I am actually not about to tell them that in 2017 ... their pension instead of making an absurd return of 8% each year has only been making 1% and during Trumps term .... their county pensions will be cut again in half so something likely 20% of what they thought they were getting for 30 years of being underpaid by the county ... their retirement pension is .... well ... gone.

Will MR Bush .... oops sorry Trump tell them ... the Federal one is ... gone ? Or more accurately never was there ? How will they take it ? How will 80 million of the 100 million baby boomers utterly reliant upon these pensions for old age take it ?

I am sure it will be fine ....

Be prepared for some spicy comments when I am done .... NO PUNCHES will be pulled ....

That's what's taking the time ... the scope and lack of humanity .... one side ... getting facts ... FACTS V Opinions ... Scientific Facts and so I can congratulate these people correctly.

Ahh must run .... but nope high I suspect ... a way aways ...

Take care


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