Tag Archives: crisis

Zerohedge, Trump and Anti-Establishment Liberalism

In response to a reporter being choke-slammed at a Trump rally, ‘Tyler Durden’ of Zerohedge writes:

Last week, in what some view as a prelude to a fascist future for America, Trump suggested he would change libel laws in order to give himself greater scope to sue journalists who pen negative articles about him

This affirms what I suspected for years that Zerohedge is run by leftists or at least some variant of Chomskyesque socialist libertarianism. They whine about the national debt, Wall St. being rigged, banker meanies, and ‘big bad trump’[1], etc. Zerohedge envisages a ‘recessionary utopia’, where bubbles never form, where there is no national debt yet abundance for everyone, where stocks don’t go up too much, where despite the permanent recession banks are always able to pay 5% interest on deposits but inflation is otherwise nonexistent (the joke, of course, is that such an economy cannot exist), where wealth is only accumulated in ways they approve of (which excludes banking and speculation), where everything is transacted in gold, and society somehow reverses to a simpler, idyllic, more ‘wholesome’ state spared of all greed, excess, and irrational exuberance. In 2009, Zerohedge heavily promoted Rolling Stone’s Matt Taibbi, a leftist who achieved fame for his expositions against Goldman Sachs. Recall that Rolling Stone was behind 2014 UVA rape hoax. In March 2012, Taibbi wrote an obituary in Rolling Stone, titled “Andrew Breitbart: Death of a Douche.”

Sanders, who wants to spread your wealth if you make too much money, is much more ‘fascist’ than Trump, who wants hard-working people to keep what is rightfully theirs. But, according the left, disposing of an unruly reporter makes one a ‘fascist’. Zerohedge is good controlled opposition, a way of pushing the ‘right’ to support libertarian variants of socialism. These types of leftists, related to post-structuralism and the Frankfurt School, tend to promote ‘blank slate‘ views of humanity, where no one is intrinsically better than anyone else and differences in outcomes are attributable to environmental factors such as ‘racism’ and unfair advantages owing to class differences, not genes. Examples of such thinkers include Slavoj Zizek [2], Foucault, and Jean-François Lyotard. They reject ‘grad theories’ and reductionist views of humanity, including economics-based/orthodox Marxism, Fascism, Democracy and The Enlightenment. This is similar to Zero Hedge, which also has very anti-establishment views. Although Trump is running (and perceived) as an ‘anti-establishment’ candidate, his policies themselves are too ‘structural’. They, these socialist libertarian leftists, despise the idea of any semblance of ‘favoritism’ or ‘elitism’, be it biological (HBD/IQ) or economic (crony capitalism, bank bailouts, etc). Although NRx is anti-democracy, which I agree with, it’s also elitist and pro-’structure’. The far-left, on the other hand, are anti-democracy because they view democracy as too elitist, too structural, or not leftist enough, whereas we view it as too liberal. The far-left seeks disorder, a society devoid of hierarchies and ‘order’ – be it biological, cultural, or economic.

Zerohedge, along with liberals and turncoats like David Stockman, Karl Denninger, Nassim Nicholas Taleb, Peter Schiff, Bruce Bartlett, Zerohedge writer and Sanders supporter Phil (who rails against low wages and the fed), and Charles Hugh Smith, always blame Wall St., the fed, or some ‘shadow entity’, never individuals, in agreement with the left, who are always looking for ‘villains’ to explain-away differences in socioeconomic outcomes and why some groups of people are always falling behind. Some blame ‘broken families’ for underachievement, but even that has a biological component.

[1] To my surprise, it seems some on on the ‘NRx-sphere’ want Trump to lose because he won’t collapse the system fast enough but rather keep it hobbling along:

The fear among reactionaries is that Trump will take a fundamentally evil, unsustainable, and spiritually/morally broken system that is in the process of self-destructing and fix it *just* enough to keep it limping along a few more decades, neither fixing its basic flaws nor allowing it to collapse so that something better can rise from its ashes. This is what Gorbachev tried and failed to do in the Soviet Union of the 1980s. It’s what Deng Xiaopeng tried and succeeded at doing in China. Decades later, China is stuck with an evil, but still functional government that keeps limping along because Deng fixed it *just* enough to keep it going indefinitely.
That seems like a pretty unpleasant prospect to me.

However, there is no guarantee that collapse will usher in the right-wing government many seek, but rather the opposite as history has shown in several instances: The 30′s, with FDR rising to power during the depths of the Great Depression. Obama in 2008 and 2012 in the aftermath of the financial crisis and the backlash against Bush. And the biggest ones of all: the French Revolution and the English Civil War. And probably the America Revolution, too. All three overthrew monarchies. The Chinese Civil War of the early 1900′s, ushering Communism, overthrew the Qing dynasty.

The whole thing is confusing (because just a few months ago everyone seemed so resolutely pro-Trump) and ties into the differences between HRx and NRx, which I’ll discuss later.

[2] The far-left is renouncing Dr. Zizek for speaking the truth about liberalism, about how oppressed people are not always right. In 2014, I penned an encomium about Dr. Zizek, suspecting he was on ‘our’ side despite being branded as a ‘liberal’. His anti-PC idiosyncrasies go against he grain of liberal conformity and ‘social skills‘. The analogy about liberals being modern ‘Puritans’ seems apt, as liberals are always imposing their moral superiority, persecuting those who don’t conform. Rather than damnation, the punishment is losing your job, being forced to resign from academia, being blacklisted, etc. Like during the Salem Witch Trials, those targeted by the SJWs never get a fair shake and are presumed guilty rather than innocent until proven guilty.

The Big Short: Market Genius or Luck?

There are a lot of finance articles lately due to the hype over the film adaptation of Michael Lewis’ book The Big Short.

Interview with Michael Burry, Real-Life Market Genius From The Big Short

Is he a market genius or did he just get lucky? There is evidence of genius, in that between 2000-2008 Michael Burry returned 500% to his investors vs. a flat market, quite possibly the highest return of any fund that decade. Even more impressive, he did not get wiped out in the 2008 bear market, capturing both the bull market and the bear with perfect timing. That kinda throws water on the whole leftist belief that the market is rigged or a scam, or that the only way people make money in the market is with luck, cronyism, or deception instead of skill or talent. Obviously, he had no connections with Washington. He didn’t engage in insider trading. Using his superior intellect, he was able to find slivers of opportunities in a market that is otherwise impenetrably efficient.

But back to the original article, is there a crisis coming? The odds of another crisis are slim.

From a discussion, someone list some possibilities:

1) Some kind of dollar, global reserve crisis that rocks the global economy for a while. Spurred on by the US debt and projected near future large budget deficits due to welfare and entitlement spending.

2) Broader bond market. I think this is a well understood threat, and doesn’t require much elaboration.

3) A specific junk corporate debt crisis. About half of the major corporate defaults in 2015 were US companies, which have levered up significantly on the back of the Fed’s super easy money policies.

4) Another significant drop backwards in the asset bubbles the Fed just got done re-inflating. If the Fed’s policies fail to provide enough to sustain those huge asset classes (real estate and equities primarily), then when they tip over it’ll pull the US economy down into a protracted recession. The global economy is practically in a rolling recession as it is, if the US goes next it would cause a lot more global pain (including amplifying the problems in China and Japan, both big exporters to the US). There’s a real debate to be had about whether the Fed can ever actually create a scenario in which the intentionally inflated assets can sustain (stand alone without Fed props), or if they have to always deflate backwards with a hefty penalty for the market manipulation / forced capital misallocation (which then prompts even more dramatic action at each turn, to try to re-inflate).

Dollar collapse & hyperinflation seems unlikely, for reasons I give here and here. Despite all of the debt, the data suggests America is not at risk of defaulting from a genuine inability to pay; however, a technical default due to gridlock is possible.

The fed balance sheet is big, but interest rates are very low. The fed has posted a large profit, a 30% gain in 2015 for a profit over over $100 billion, which is sent back to the treasury.

Due to the mathematics of the yield curve and the composition of the fed’s holdings, the the odds of the fed losing money on its holdings are low.

“Short-term interest rates would have to rise rapidly to quite high levels — in the neighborhood of 7% — for the Fed’s interest expenses to surpass its interest income. Such an outcome appears very unlikely,” the paper said. In the event that the Fed did face a loss, it could simply hand no money back to the Treasury and, “in the most extreme case, future remittances would also be reduced (and recorded as a change in deferred credit), but the Fed’s capital base and financial position still would remain completely secure.”

Japan has a much bigger debt, they seem to be doing fine. Low interest and strong dollar is due to reserve currency status, flight to safety, emerging market weakness, commodity weakness, petrodollar, the large size of the US economy, and other factors.

Corporate profits are at record highs. A crisis in the corporate debt market would require either a major decline in profits (from a deep recession, for example) or a spike in interest rates, neither of which show any signs of occurring.

Overall though, a bet against the US stock market is probably doomed to fail, unless your lucky or skilled like Michael Burry was. Here’s why:

1. Nowadays, options are priced in such a manner that the expected value of buying out-of-money hedges is almost always negative. This is due to the inflated volatility for out-of-money put options and other factors.

2. It just so happened that the subprime mortgage meltdown coincided with Michael’s career; for the period between 1935-2007, his strategy would have failed. It also would have failed between 2008-present. Maybe it would have worked in 1987, so we’re talking three instances out of a century.* Right now, the evidence suggests banks have reformed their lending practices, with higher credit scores for new homeowners, so the odds of another banking meltdown in America are slim.

3. Then you have the constant stock buybacks, tame inflation and modest valuations, record high profits & earnings that keep growing, consumers that won’t quit consuming, and so on. A totally different landscape than before 2008 when Taleb, Michael, and other bears made their fortunes. I just don’t see a compelling reason for stocks to fall much.

4. A bet against the stock market (especially tech) is a bet against capitalism, technology, high-IQ, and the best and the brightest. Do you really want to bet against Amazon, Facebook, Microsoft, and Google? Do you want to bet against the fed and a billion consumers from all over the world, along with all wealthy consumers from China? I sure as hell don’t. Just because bears made money in 2000 and 2008 doesn’t mean it will work again. It may be years or even decades before there is another a big selloff. For every success story of someone who bets against the market, there are a dozen losers, although no one makes movies or writes books about them.

5. Perpetually low interest rates makes stocks more attractive at a higher valuation than usual. The price part of the P/E ratio is reduced when inflation is very low. When inflation is high, cash is more attractive.

Profitably betting on the collapse of the financial system is obviously much harder than merely betting on a decline. When you restrict the payoff to near default (>80 or greater loss of price of the underling security), the math shows that only 1929 (around that period) and 2008 would have yielded a positive return.

Of course, leftism is to be expected in anything even tangentially related to Michael Lewis, from the article:

The zero interest-rate policy broke the social
contract for generations of hardworking Americans
who saved for retirement, only to find their
savings are not nearly enough.

There isn’t really a ‘social contract’ in the Constitution, Declaration of Independence, or anywhere. There is no document that stipulates that the government owes anyone anything beyond ‘life, liberty, and the pursuit of happiness’, which are intentionally vague. The expanded ‘social contract’, which includes housing, jobs, guaranteed income, welfare, education, healthcare, high interest rates,…etc, is a construct by the left to justify more wasteful entitlement spending, to make the rich feel guilty for not spreading their wealth more than the high income taxes they already pay.

The evidence actually shows that a better returns can be had with stocks than cash (bills). Even with rates at 4%, stocks way outperform cash:

Putting cash into a bank is a poor way to save for retirement, if past performance is any clue.

The ‘hardworking person’ saving for retirement by stashing all his money in the bank may more myth than reality.

The majority of Americans have little to no savings, so the difference between 0% rates and 4% is immaterial if your expenses exceed your income.

The problem is not that interest rates are too low, but rather people suck at personal fiance. But on the other hand, the Paradox of Thrift suggests that it’s ‘good’ for the economy that people don’t save too much.

Those who have more wealth put it in bonds, collectibles, real estate, or index funds. They seldom just keep it in cash.

Another thing that’s kinda annoying are all these people who think their predicting of the housing market bust in 2006 is attributable to some sort of profundity on their part, rather than just broken clock theory.

Contrary to popular belief, many pundits were actually bearish on housing in 2004-2007. Given the enormity of the crash, it makes these predictions seem more prescient than they really were, but such predictions were hardly unique. Of these pundits, very few actually made money betting against the housing market. A Google news search from 2004 to 2006 shows many pronouncements of a bubble or crash in housing, as well as much skepticism of the housing market.

About half of the entries are pessimistic about housing (articles by CNN, NY Times and Bloomberg, Mises Institute, Robert Shiller), and the other half are bullish, dismissive of a bubble, or neutral (Cato Institute, WSJ).

By late 2006, being bullish on housing actually made you more of a contrarian than being bearish. As a rational realist, I’m not too impressed that someone predicted something that hundreds of other people also predicted in that same time period, and then didn’t even act on it by shorting the market. Also, the vast majority of pundit predictions are wrong (like all those failed predictions between 2009-2014 for the stock market to crash and or for a double dip recession), so being right once out of dozens of incorrect calls is hardly a sign of innate skill or prescience at forecasting.

* Restricted only to American financial institutions. Foreign ones have had many more crisis.

The Bailouts Benefited Everyone, Not Just Bankers

From NYT: Bernie Sanders: To Rein In Wall Street, Fix the Fed

WALL STREET is still out of control. Seven years ago, the Federal Reserve and the Treasury Department bailed out the largest financial institutions in this country because they were considered too big to fail. But almost every one is bigger today than it was before the bailout. If any were to fail again, taxpayers could be on the hook for another bailout, perhaps a larger one this time.

To rein in Wall Street, we should begin by reforming the Federal Reserve, which oversees financial institutions and which uses monetary policy to maintain price stability and full employment. Unfortunately, an institution that was created to serve all Americans has been hijacked by the very bankers it regulates.

When the fed bailed out the banks, they, in essence, bailed out the most productive people. By throwing Wall St. a lifeline, the fed and congress sequestered the problem parts of the economy, allowing the healthier parts such as Web 2.0, retail, Silicon Valley, e-commerce, venture capitalism, and biotech to thrive instead of being dragged down by the ailing banking sector. That is something few understand – they think it was just bankers who got bailed out, but pretty much every productive person benefited at least indirectly from the bailout, which by 2011 finally turned a profit despite all the predictions in 2008-2009 of its failure.

Everyone wants to blame capitalism and Wall St., but pity the loser homeowner who thought it was a good idea to buy a 6,000 square-foot McMansion on $40,000 income with zero down.

Financial regulation is doomed to fail because you cannot regulate stupidity, but that doesn’t mean everyone has to suffer for the mistakes and stupidity of some, which is why bailouts have become an unavoidable part of modern capitalism. It’s like choosing the lesser of two evils: risk moral hazard or risk things getting worse?

Sanders also ignores how bank balance sheets are the healthiest they have ever been and that non-performing loans are at record lows, suggesting that banks have reformed their lending practices:

Credit scores for mortgage originations are rising:

Subprime lending has also collapsed, and mortgage debt is back to it’s long-run trend after a bubble in 2003-2008.

If any were to fail again, taxpayers could be on the hook for another bailout, perhaps a larger one this time.

While taxes did rise in 2013, it was not out of economic necessity, but rather due to gridlock and Obama’s refusal to compromise by cutting certain programs (for example, raising the Medicare eligibility and slowing increases in Social Security costs by reducing cost-of-living adjustments). The bailouts turned a profit by 2011, and by 2014 the treasury reported profits of $15 billion on TARP. Can the same be said for welfare programs like disability, Obamacare, free emergency room treatment, social security, and food stamps. I think not. Although some welfare is probably necessary to avoid disruption, it’s disingenuous for liberals to pretend to be looking out for taxpayers, yet simultaneously advocating policy that greatly adds to the deficit and produces negative long-term economic value. Welfare liberalism is reverse Darwinism: throwing more money at the losers of society while at the same time punishing the successful with higher taxes and more regulation. And then they wonder why the economy isn’t growing fast enough or not enough jobs are being created.

Liberals like Sanders think they are ‘saving’ mainstreet, looking out for our ‘best interests’ by attacking the fed, when in reality they advocate policy that would destroy wealth and punish the most successful and productive.

Related: Don’t Blame the Fed – Blame Stupid People, Liberalism, Democracy

Collapse can wait

From David Stockman: Why This Sucker Is Going Down…….Again!

In a word, with a printing press. But what happened today is that Draghi showed he is out of tricks and Yellen confessed she is out of excuses.

Yes, this sucker is going down. And this time all the misguided economics professors turned central bankers in the world will be powerless to reverse the plunge.

Yawn… haven’t they been predicting collapse since 2009? It gets old after awhile. There have only been two financial crisis in America in the past 100 years: 1929 and 2008…the odds are we won’t live to see another one.

M2 velocity is sill very low and the currency in circulation hasn’t grown beyond it’s historical growth rate.

All this monetary policy can be likened to taking a bunch of money, putting in a safe, and melting the key. It hasn’t gone into the economy.

The stock market and economy is doing well because of fundamentals such as record high profits & earnings and consumer spending. Central bank policy may have helped a little, but it’s hardly the major contributing factor. If the US economy were dependent on QE, why have stocks surged 25% since May 2013 when the fed announced they were going to end QE? Discuss this further here.

Indeed, for a short period of time the brunt of the industrial production adjustment occurred in China and the EM. In effect, China and its supply chain had become the exporter/creditors of the present era.

.., but China only owns 8% of the national debt, although the media hype may make it seem like they own all of it.

Likewise, labor productivity has stalled dramatically. Since the pre-crisis peak nonfarm business productivity has grown by only 1.1% annually or at just half its historic 2.3% rate. Moreover, during the last five years productivity has grown at just 0.4% per annum.

Not sure what he’s taking about. Productivity seems in-line with historical trends:

Furthermore, it seems banks and policy makers have learned their lessons from 2008: lending standards are much more stringent. For example, the quantity of subprime mortgages have fallen considerably since 2008:

After a spike between 2003-2006, mortgage debt is back to it’s historical trend:

And, Fed stress tests: Banks come out stronger than ever

Federal Reserve says 29 of the nation’s 30 largest banks could survive a severe economic meltdown. Of course, some people will never be convinced, no matter what anyone says.

Also, leverage ratios for major banks are well off the 2008 highs, which could explain the good stress test results:

Entitlement spending could be problematic. Immigration control won’t stop the millions who are already citizens and producing negative economic value. That leads to the e-word, eugenics, which few have the bravery to endorse, but I see it as possibly the only long-term viable solution to the entitlement spending problem, in addition to restricting low-IQ immigration. Boosting the national IQ by just a handful of points can help remedy a multitude of problems.

We now have life, liberty, free emergency room treatment, ebt, education, section 8 housing, and the purist of happiness…for all. The government won’t allow sick people die in the streets, nor will it deny certain services. Or maybe there will be enough abundance created by technology and the productive class to take care of everyone…hard to know.

I had an exchange with Nick Land about this, and he disagrees, arguing that the Cathedral wins if there isn’t collapse.

I’m partial to not having things fall apart…it would hurt a lot of productive people to have collapse. Hurt wage earners, businesses, retirees who have savings, home owners with equity, etc. We don’t have to throw the baby out with the bathwater.

There are better ways of dealing with the Cathedral than resetting everything. As I posit in the Kaczynski post, is it worth replacing one problem with a worse one? As for solsutions, I don’t know. Collapse doesn’t guarantee the Cathedral won’t be rebuilt. I predict, possibly within the next generation, a mass realization by politicians due public pressure to address problems such as enticement spending and immigration, averting a possible crisis.

The want or desire to see crisis when the evidence doesn’t support it strikes me as wishful thinking, which is antithetical to the rationalist in me. I care about empirical evidence and data. If there have only been two major financial crisis in the past 100 years of US history, I’m going to err on the side of there not being a crisis soon. This unwavering belief in the face of empirical evidence in crisis just strikes me as another religion or superstition, but instead of selling indulgences they are selling newsletter subscriptions, bad investments, and overpriced gold.

I’m also kinda confused by Nick Land and Michael Anissimov, both who were (or still are?) involved with futurism – Accelerationism (to serve Gnon) and Singularitarianism, respectively – but now seem to be renouncing these views by seeking collapse and the end of modernity? Eschatology seems contradictory to futurism. I think in 2011-2013 or so, the idea of a ‘sci-fi NRx’ seemed cool, but since 2014 has fallen out of favor to more of a medieval style of reaction.

Nick Land discusses how NRx is Accelerationism with a flat tire being the Cathedral.

Neoreaction is Accelerationism with a flat tire. Described less figuratively, it is the recognition that the acceleration trend is historically compensated. Beside the speed machine, or industrial capitalism, there is an ever more perfectly weighted decelerator, which gradually drains techno-economic momentum into its own expansion, as it returns dynamic process to meta-stasis. Comically, the fabrication of this braking mechanism is proclaimed as progress. It is the Great Work of the Left. Neoreaction arises through naming it (without excessive affection) as the Cathedral.

So so the solution is to somehow remove or override the decelerator (re-accelerationism) instead of destroying the system, which agrees with my approach as well. The whole thing is kinda confusing, and in the past year I haven’t seen any posts in the nrx-o-sphere about accelerationism, suggesting it may have fallen out of favor.

To conclude, collapse can wait. But who knows, I will leave the window open for < 1% probability for crisis, just in case.