High Plateau Drifter: "Old Trend - New Trend"

The latest from our old friend High Plateau Drifter:

Last night I watched (once again) the movie The Big Short with Christian Bale as Michael Lewis. It is a history lesson on the crisis of falling housing prices in mid 2007 through 2008 and the mortgage default crisis which accompanied that collapse.

The key point of the movie is the psychology which makes a few people see the obvious in years 2006 and 2007 while most others ignored it. And when I say "obvious" I mean the weakening and exhaustion of a trend in which mortgage finance outpaced incomes thus making a collapse in housing prices inevitable just as night inevitably follows day.

Moving now to present day matters we have the matador moving ever closer to the raging bull of deficit spending armed with only a pocket knife instead of a sword.

The future for financial instruments is baked into the cake.

	Federal "Deficit"	Federal Debt Increase
For year 2018	$833b	$1,271b

Note that the "Debt Increase" includes the interest cost of nearly $400 billion on $15.9 trillion of public debt outstanding, or 2.5% interest (not counting interest on, or principal amount of inter-governmental debt holdings). As you can see, there is an awful lot of rate risk north of 2.5% on outstanding Treasury debt. And given that the President is something of an expert on default and restructuring, I wouldn’t put it past him to try an executive order "cram down."

As of now, only the first 7 years of the post WW-2 baby boom generation (1947 through 1964) had reached age 65 and thus became eligible for social security benefits pictured below. There are another 10 years of baby boomers to go! And in year 2018 Social Security is already costing us one trillion dollars per year meaning that another 10 years of Boomers along with cost of living increases will send it North to 3 trillion. And the big advances in medicine mean we keep more people alive for longer periods of time.

Add to the above the increasing automation of manufacturing and even service industries, and the Red State rebellion that Trump provoked will be much worse and likely turn violent.

Of course those of us who were econ majors in college will wonder how demand is to be maintained when vast numbers of former middle class voters are thrown out of work due to automation. The solution will be a guaranteed income for all – as championed by Bernie Sanders and Ocasio-Cortez. The problem is that as unemployment climbs up the skill and intelligence ladder, at some point the system will be paying money to many capable, aggressive and very angry males. Make them unemployed, and they will have time for face to face communication and the mobility to organize into an irresistible force in ways the system cannot track.

Previously on CBS regarding the bond bear market.

• Trump will be remembered for inaugurating a bond bear market, and not much else. It is shocking how little discussion there is of the November 2016 "Trump bond crash," and bonds have continued to set new low after new low since then. [March 2018]
• The financial system wouldn't be so unstable if the Fed hadn't tried so hard to stabilize it. The Fed's response to the bubbles it has created is to blow even harder and hope for the best. The Fed has got itself into a corner and has no credible strategy to get itself out. We know that the latest bubbles must burst at some point and when they do interest rates are likely to rise sharply as bond market investors attempt to dump their holdings. When that happens the financial system will collapse, again. The temptation will then be to prop up bond prices by monetizing what could well be the entire government debt... [November 2017]
• "[T]he US has a very short maturity structure, so higher interest rates turn into higher debt service quickly. We live on the edge of a run on sovereign debt. The US has a shorter maturity structure than most other countries, and a greater problem of unresolved entitlements. Despite our 'reserve currency' status, we may actually be more vulnerable than the rest of the high-debt, large entitlement western world." [April 2017]
• Ultimately, debt implies a future transfer of purchasing power, and provides only a few choices. Either you raise adequate tax revenue, or you denominate the debt in long-term bonds and devalue them through inflation, or you default, or you violate the social contract made with those who don't hold paper claims (e.g. Social Security beneficiaries) in preference for those who do. Had the borrowing resulted in productive investment, future output would be easily available to meet those claims. Instead, what’s going on is a quiet dilution of future living standards. [December 2016]
• [Y]ou're looking at the endgame of a Ponzi scheme that ended when it caused the total fertility rate, and thus - eventually - the worker retiree ratio, to drop too much. To put in a different perspective, the total equity value of the S&P 500 companies is less than $20 trillion. Imagine the federal government exhausting that much capital in ten years. I don't know when it will happen, but I think the bond market will choke. Occasional spikes in bond yields will be the signal that no more can be borrowed. [December 2016]
• The next crisis is going to come in the investment that is currently perceived as riskless enough for highly leveraged institutions like banks to buy. Right now, government bonds are accorded zero risk in calculating bank capital ratios. The idea that government bonds are riskless when governments are planning to flood the market and when the expenditures are consumed (building no collateral) may prove to be the latest extraordinary popular delusion. This week has illustrated my point. The election of Trump led to an immediate 25 bp increase in the 10 year bond yield, which means an instant 2.3% loss in value. More than a year's worth of interest. [November 2016]
• There could be a period when stocks and bonds go down together. For example, instead of stock declines -> people wanting the security of bonds, people might decide that stock declines lead to bailouts which are really stealth currency devaluations, and decide they want no part of the long end of the yield curve. It is very, very nonlinear, because once bonds lose momentum, who will want to own them? Professional asset management and retail investor sentiment are both all about momentum. And every credit - government or corporate - looks much worse with rising interest expense. I think we will come to realize that a lot of stuff in the economy (junk bonds, private equity) was part of a virtuous interest rate cycle. If you synthesize the best parts of Falkenstein and Redleaf, you predict that the next crisis is going to come in the investment that is currently perceived as riskless enough for highly leveraged institutions like banks to buy. [May 2016]
• We can see with Trump's tax plan (implausible tax cuts and no specific expenditure cuts) that the personalities no longer really matter to the ultimate outcome: sovereign debt crisis, inability to debt finance expenditure, followed by loss of legitimacy of government. [September 2015]
• Having $3 trillion of assets under management puts you in the top handful of asset management firms. Owning $1 trillion of treasury debt (like China or Japan) makes you one of the largest holders. Who, then, is going to be buying the $3 trillion a year that federal, state, and municipal governments are planning to borrow to cover their operational and pension shortfalls? [June 2015]
• For the counterargument that the Fed will just buy bonds to "keep rates low", you have to face the fact that QE invariably caused rates to rise, and you could (and we did) make money buying bonds every time the Fed stopped buying them. As I kept trying to explain, the QE bond purchases may have been respectably large in relation to the flow of debt issuance, but they were puny in relation to the stock of $60T of dollar denominated debt. It freaked creditors out about inflation more than it helped. [May 2015]
• The legitimate purpose of public debt is to borrow money to build infrastructure improvements that have a positive net present value. However, a vast portion of federal expenditure now leaves nothing tangible, leaves no collateral. A treasury bond is a certificate that money has successfully been expended on section 8 housing, or on make-work military "jobs". The lack of collateral makes these treasuries creatures of social mood. In a way, they are as valuable as tulip bulbs or south sea shares. What is a treasury going to yield when mood darkens, and a distressed investor who looks over the enterprise for scrap value is the marginal buyer? [February 2015]

Baby boomers will never be able to accept this psychologically. Baby boomers are accustomed to some asset always going up. If not stocks, then bonds. Hence their 60/40 "diversification" strategy.

High Plateau Drifter: The Ghost of Jesse Livermore

After nine years of rising stock prices, now accompanied by an early and thus far mild trend of rising interest rates, it is now time to watch for developing weakness among the tech favorites which are certain to lead the market lower when the current rally falters. I have two favorite indicators for this, the Positive Volume Index (PVI) - a line showing price action on days when volume is higher than the previous day, and the Negative Volume Index (NVI) - a line showing price action on days when volume is lower than the previous day.

A tech darling that is rising in price but with a declining late cycle PVI accompanied by a rising NVI is being distributed by sophisticated holders and is a warning of further weakness. It is precisely the pattern that Jesse Livermore described in his "stock operations" back in 1903. In between selling on heavy volume you buy the stock on less volume to drive the price up when you are not selling, thereby keeping the price rising or flat during your distribution - or stock operation to use Livermore's term.

Nowadays, unlike in 1903, computers can sense the opportunity and run the "stock operation" with precision. So as AAPL rises in price, it now has a steadily rising NVI since Nov. 2016. AAPL's PVI has been volatile but flat since May of 2017. You should be avoiding or distributing at this point.

GOOG has had a steadily rising NVI since May 1, 2014. It also has a volatile but flat PVI since Jan 2, 2016. I should note that we now have a strongly rising NVI since 4/19/18 and a sharply falling PVI since that same date even as price has risen dramatically since 5/4/18. This is a sign of impending danger. The smart money is distributing GOOG aggressively to the dumb money.

SBUX has a very powerful and steady decline in PVI since August 5, 2015 and a steadily rising NVI since that same date, and all the while price remained in a flat (but volatile) trading range. The price of SBUX has broken below that trading range and is (as I write this) at $51.24. SBUX is a screaming short.

I should also note that QQQ has the same threatening volume trends as the three of its component stocks above. On a further note I am short TSLA with puts but not yet short on any of the above.

More later. Stay tuned to Credit Bubble Stocks.

High Plateau Drifter: The Lloyd Blankfein Interview

(See transcript also.)

The meteoric rise in the popular stock indexes after Trump's election victory in 2016 greatly surprised me. I assumed that money managers and those generally employed in - and generally controlling - the financial industry to react in shock and tank the markets. Instead, we got a rip snorting rally. Clearly, the titans of finance were pleased with the result.

I rationalized that perhaps the euphoria in the markets was a result of their impression that nothing would get done or change. But then how does one explain this market response in the face of the outright anti-Trump hostility from the main stream media. Do the titans of finance inhabit an alternate universe from the rest of the liberal society that surrounds them?

After much thought I figured that as long as they are free to make money, they do not care about the political strife surrounding and beneath them.

The Lloyd Blankfein Interview makes that clear. Without mentioning Trump's name, he approved his policies. The main stream media is clueless. 

But more important as a signal is his calm reassurance that the markets are just fine. Indeed there was no other possible purpose for him peeking around from behind the curtain than to reassure investors.

And that means it is time for caution. Indeed the six month T-bill yield tells a different story.

Money managers can now go to t-bills while collecting their 2% without reducing client cash balances. With treasury debt growing at record levels, interest rates are going to keep rising until something breaks, and breaks badly. The government has two choices. Issue more debt and drive rates higher, or flood the markets with new cash as the Federal Reserve purchases the new debt, thereby driving inflation much higher - albeit with a lag.

My bet is that the Federal Reserve wants to drive the stock market down for a spell to cool the animal spirits. My second bet is that they underestimate the fragility of this debt driven economy, and that the rising rates will cause a crash. Beware the Fall of 2018.

High Plateau Drifter: "The Pain of Entry"

In investing, entry into a new investment decision is fraught with anxiety and potential pain.

The objective in placing a sell order, or a short sale, is to be close to the top tick. But if your timing is wrong, you may miss out on an additional 10 or 20 percent future gains if you were long, or incur immediate losses if you are prematurely short.

Right now, common stocks are at nose bleed levels after eight years and eight months of advancing prices. Long bond prices traced out a basing formation at the lows in price from mid 2003 to mid 2007 highs, and post 2009 lows, have been rising in price (falling in yield) for the past 8 years. The rally in bond prices from late 2016 to the present looks weaker than the three major rallies of the past 9 years. Indeed we see a pattern of lower MacD crossovers (basis TLT) to the downside from January of 2015 through the present, with the most recent crossover signalling possible bond weakness (rising rates) arriving soon.

Thus it would appear that rates are headed higher, and that time is running out for this stock market rally.

But then how long can such trends indicating future weakness in a rising market continue? Interesting enough, no lesser authority than Jesse Livermore cited examples of smart short sellers taking a long position in a stock first, just to see how long a wrong headed rally can last. That is probably a smart move.

Investing is all about control of your emotions and testing your hypotheses. After all, it is easier to resist a premature short if you are long a modest amount of the stock or index. Present pain is a better signal than bearish conjecture about what the future might bring.

High Plateau Drifter - May 8, 2017

Help me out! So here we have the Swiss National Bank acquiring 63.4 Billions in US stocks.

But what in the world is a national bank going to do with common stocks? We know that purchasing corporate stocks will tend to prop up stock prices. So what happens when they stop buying? Are they going to sell them at some point and thus depress stock prices?

And how is the purchase of corporate stock by a national bank any different than a government financed stock buy back? Does it benefit anyone other than the shareholders of that corporation? Where is the public or governmental benefit in such a transaction?

As we all know, when a central bank issues new currency to purchase sovereign debt, the debt is kept on the central bank's books as a fig leaf to cover the genital warts of otherwise naked money printing. Of course we also know that a central bank with the power to create new money could simply cancel the sovereign debt it has purchased at any time, relieving the government of any obligation of repayment, and without material consequence to its mission, other than the inflationary optics created by removal of the fig leaf in proportion to the amount of the sovereign debt cancelled.

Is the Swiss National Bank going to vote these shares? Elect directors? The U.S. Federal Reserve is prevented by law from purchasing stock of private corporations. Is the Swiss National Bank making these purchases at the request of and for the benefit of the U.S. Fed?

And once the crack cocaine of Central Bank money printing is used for propping up stock prices, won't the bear market which follows when the printing stops be that much worse?

Remember how central banks sold gold at the lows 15-20 years ago? Won't it be perfect if they sell these stock portfolios at the next low?

High Plateau Drifter: "Of War and Medicine"

Few seem to understand the real threat of globalism and why the U.S. generals opposed it by supporting Trump in the 2016 election. The answer is obvious if you think about it.

If one global government gains power over the entire planet there would be no need for national armies or navies to defend against other nations. A one world government would only need police - lots of police. The generals would be unemployed.

And that is why the generals jumped on the Trump campaign wagon. For them, globalism is a vastly more powerful threat than Russia to their careers and their institutions.

But a more immediate problem for the generals is their conflict with the CIA. The CIA has been financing and equipping proxy armies to fight wars, but of course the proxy armies cannot be controlled, go rogue, and the military must come in and fight the rogue armies that CIA created.

Those proxy wars in the middle east are a significant irritant but not a serious problem. But the CIA led and funded coup in Ukraine is the first CIA step toward destabilizing Russia itself, beginning with meddling in the Islamic areas of southern Russia and in national Russian politics, hoping to encroach into Russia proper from the South and ultimately stage a Maidan in Moscow.

The generals know that Russia has superb first strike nuclear weapons, superb air defenses and little else. A first strike would give Russia a huge advantage if Russia is left with no option other than war with the U.S. These CIA efforts to destabilize Russia and make it a vassal of the U.S. create a serious risk of a massive nuclear first strike. Russian ballistic missiles can reach the U.S. in half the time it takes for U.S. missiles to reach Russia. Their air defenses would also destroy some number of retaliating U.S. nukes.

The fact that the CIA could trigger an attack from Russia is alarming to the generals. Indeed, it is quite likely that they would be unaware of the provocation and that such an attack could take them entirely by surprise. And the fact that the generals now have a president they can trust with custody of the red button is but little comfort. Comforting perhaps as compared with war mongering Hillary in control of the red button, but providing no comfort whatever with respect to the decision tree in Moscow.

In fact, Russian leaders know perfectly well that the CIA is listening and it is highly likely that their conversations are staged to conceal the real breaking point at which Russia attacks. (Mass surveillance merely multiplies the opportunities to distract and confuse the entity that is doing the listening.)

Now consider Congress, which has the responsibility for establishing and monitoring the CIA. There are 535 of them, counting both House and Senate, so many that no individual is going to feel direct responsibility for, or take ownership of, what the CIA does. Each of them spends about 5 hours of each day dialing for dollars and related activities for contributors. He or she never reads legislation, having only time for summaries prepared by staff.

It is up to the president to fix the CIA and hope to survive the process. He will get no help from Congress.

Indeed, as those in Congress assiduously court their contributors every day, much the same disease infects the medical insurance debate. Medical insurance absorbs 35% of premiums collected in salaries and overhead of the insurance companies. Rising deductibles have none of the cost containment features that apply to insured amounts above those deductibles, and this causes hospitals to raise their retail prices to match the deductibles of each different policy issued in their service area, all tracked by computer.

Health insurance is a confidence game meant to strip wealth from the middle and upper middle class (The poor have Medicaid).

In order to make health care affordable, you must have a first dollar, "take it or leave it" payment for services, with only nominal deductibles of perhaps $50 per visit. Making health care affordable is easy, you just pass a law allowing people to purchase Medicare early, long before retirement. You copy the existing reimbursement schedules and price it by age according to actuarial tables, with higher rates for those with a body mass index above 30.

So why does Congress fail to do that which would benefit the vast majority of the people? Simple, it would utterly destroy the health insurance industry, a small and marginal industry with small and marginal political contributions. It's 35% vig would disappear and the gaming of higher deductibles and higher retail hospital charges to match would end.

Fear is the best way to maximize political contributions from vested interests and minimize the amount of time dialing for dollars. Spending five hours per day day dialing for dollars is proof of insufficient fear and insufficient respect among lobbyists and special interests. Congress should go ahead and wipe out the existing health insurance industry. The voters would love the cost savings, and fear among other special interests wishing to avoid the same fate would rise to the point where revenue would probably double.

The 435 House members are about the size of a reinforced infantry company, but obviously lacking in cooperation, self discipline, and strategic thinking. It is the special interests that should be calling the members. The fact that the members must do the calling (begging) is a clue to understand why our country is circling the drain.

High Plateau Drifter

An astute analyst described the 2016 presidential election as a contest between the CIA and the military, each with its own candidate.

That same analyst stated that Trump wanted to pull Russia away from its alliance with China, thereby limiting the economic resources needed to maintain world wide military dominance. Thus it is remarkable to see how the generals, who backed Trump as soon as he took the lead in the Republican presidential primary, and now have taken over his foreign policy positions, will have none of it and want to reinvigorate the Russia China alliance and keep preparing for war against both at once.

These Generals seem to have no grasp of economics and more specifically, the meager resources available to the U.S. to undertake such a military posture over an extended period of years. Ironically, until recently China and to a lesser extent Russia were lending us the money to fund our military through their purchase of treasury bonds. Lately they have been selling, presumably to central banks.

We now have elements of the deep state fighting with one another - competing for scarce resources, generating conflicting factions within the intelligence community and now competing with the military. As the bureaucracy metastasized and generated multiple fiefdoms, this kind of conflict became inevitable. And as the CIA formed and funded armed proxy forces which then went rogue requiring U.S. military intervention resulting in the deaths of American soldiers in the clean up operation, natural tensions have arisen. The abortive raid in Yemen (which the enemy knew was coming) is a classic example.

And now the Republican Congress is talking up Greek style "austerity" with no stimulus and paying down the national debt. This will end badly. We either inflate or crash, and in either case working class anger increases, and with austerity it boils over quickly.

High Plateau Drifter: "A tale of two nations"

As I watch the massive anti-Trump marches, shouting, window smashing, fires and physical assaults, I cannot help but conclude that this will have the unintended consequence of radicalizing the Trump voters and potential voters. My strong impression from acquaintances in the exurban Texas county where I live is that most Trump voters had only a moderate attachment to the candidate and his policy message. The media and the screamers are doing everything in their power to super charge that attachment.

Most clearly had no idea that the election of Trump could make so many young whites take to the streets and start fires and break windows. Obviously, those Trumpsters who watch Breitbart, or read Zero Hedge probably had some idea of the potential extremity at the other end of the political spectrum. However, the "mainstream" media is proudly streaming video of these riots and protests to much less committed voters and potential voters, expecting them to somehow be frightened into opposing job creation, vetting potential terrorists, and ending illegal immigration as contrary to American values.

This news coverage will have the opposite effect as can be seen in the polling numbers showing clear majority approval of Trump's temporary freeze on immigration from 7 Moslem countries. In fact, it is obvious to average voters that opening the borders and allowing millions of immigrants to flood into the country will do nothing to improve their lives or incomes. Oligarchs and corporate titans, yes, but high school grads and college grads from less competitive colleges and universities, not so much.

But far more fascinating is the intensity of emotion in young white protesters shouting, threatening and harassing the attendees at the Milo Yiannopoulis campus speeches. The charge they level is that opposition to open borders, bringing jobs back to America and improving the living standards of citizens (regardless of race) is, nevertheless, racist. Milo calls these protesters "cucks." But the label does not come close to describing the sense of emotional panic and vehemence of these protesters. A "cuck" is one who meekly and quietly moves to the corner and watches (It does describe many Republican Congressmen).

In contrast, one cannot escape the impression that these protesters are filled with fear that there will soon be a mass uprising of all the the brown and black people on the planet who will slaughter whites, and they hope that somehow their past record of protest against “racists” will allow them to be spared.

It is as if this world wide uprising of black and brown people will be organized and will run massive formal Nuremberg trials of 500 million whites world wide to sort out the virtuous from the condemned.

Pure delusion.

But then there is the economic explanation.

If your parents are employees of local, state for federal government, and you would like to follow in their footsteps, avoid the brutal world of competition and 12 hour work days in the private sector, and then retire to a fat $100,000 plus per year pensions, then Trump does in fact pose an existential threat to that expectation.

After all, mass immigration provides huge and growing demand for low intensity clerical work to process the welfare needs of these new arrivals.

The problem is that even low IQ immigrants gradually adapt, find jobs, and at least at the margin, go off welfare. Without a continuing inflow there is slow attrition of government jobs and a reduced demand for public "services." While the parents of these protesting students may be able to keep their jobs, the absence of massive new arrivals guarantees fewer future hires, throwing these young protesters to the fierce competition and the long work hours of the private sector, where entry level wages for graduates of less competitive schools - and indeed all but the top graduates at many mid ranked state schools with good football teams - are subsistence level.

You can say what you like about the student protesters, but the main stream media should know enough to see the danger of the emotional attack on Trump and his policies as "racist". All they are doing is diluting the effect of that epithet and radicalizing Trump voters. The other thing that the main stream media fails to understand is something that the Kelly Ann Conways of the world have experienced first hand. In the U.S. there are approximately 800 counties – all “red” in presidential elections - which are more than 90% white and which have birth rates around or above 3 per woman.

Anyone who lives in the Red States can see that this trend is growing. The church parking lots are overflowing on Sundays. Intelligent kids are cooperatively home schooled to escape bad schools. Once the social pressures of the 1950s to marry and have kids evaporated in the early 1960s with the the advent of the pill, we had a large increase in the percentage of childless couples living the consumer lifestyle. Post pill, procreation depended upon instinct - a genetic factor - rather than social pressure.

Thus in two to three generations the only whites left will have strong reproductive instincts (in addition to mere sexual urges), which will have huge implications for consumption.

If you are a socially isolated high IQ professional, having children is very expensive, but for these exurban church going breeders, having children is cheap. There are child care coops within the congregation. There are teenage girls who do baby sitting. Parents with older children pass children's clothing on to younger parents in the congregation.

The men at most of these churches have trucks and earn good incomes as tradesmen - plumbers, electricians, locksmiths, well diggers - and it is easy for young high school grads to find apprenticeships with them, particularly older tradesmen who are declining in physical strength. If some of the parishioners have ranches or farms, there is less need to do prepping for survival, and a ready group of armed guards of food stocks and livestock in the event of societal breakdown.

As an aside, to aspiring white nationalists out there I would advise that you stop pissing away money on fancy "conferences" staged to sate the ego needs of self proclaimed "leaders" and get a divinity degree instead.

But on a more serious note, we now have the massive trend of the baby boom whites cutting back on consumption, (the lead edge is now 71) and we have the replacement generations of church going young whites cooperating to keep consumption in check as their birth rates and numbers rise rapidly.

The investment implications of these trends are clear as are the political and voting trends. And we no longer have Walter Cronkite instructing us every night on how we should feel about events that fit the narrative, and where the limits of acceptable opinion are located. We have Milo, Bannon and Trump telling us that it is all a fraud and a con, and that we should laugh at and ridicule them.

Trump holds all the cards. Congress appropriates funds but it cannot force Trump to spend.

The courts can issue injunctions and writs of mandate till the cows come home and the President, and everyone under his command, can ignore them as President Roosevelt did prior to his Court packing exercise.

Congress could shut down the government by refusing to appropriate money, but then they would not be re-elected, and the states would take over and do a much better job of running the country.

This is going to end badly for the screamers both in the media and on college campuses.

And if they really are enamored of violence they had better look at the tiny areas of blue on the map. They are surrounded.

High Plateau Drifter: "A veterans' day reverie."

To all my fellow veterans who have been tethered to the stake in small numbers as sacrificial lambs to serve as targets so as to justify larger wars - from those sailors left behind at Pearl Harbor, to the small units stationed in Saudi Arabia on the border of Iraq over a decade ago - and the small units of NATO allies moving up to the borders of Russia as a provocation now:

Greetings from a veteran of the Berlin Brigade 1970 - two years after the Soviet invasion of Czechoslovakia - 10,000 of us surrounded by 250,000 Russians and East Germans.

Understand what your sons and daughters are volunteering for!!!

The elites and oligarchs know perfectly well that Russian nukes target them and only them, since the object of modern nuclear war is surgical decapitatation of the leadership, and definitely not the the de-population of the flyover areas of the U.S.

They fervently hope for early warning by tethering your sons and daughters as goats to the stake and pray fervently that Russia will take their lives, the irrelevant bait, and not bypass them and surge forward to real targets.

High Plateau Drifter Rides Again: Hillary's Parkinson's

High Plateau Drifter writes in,

The above video is a must watch. Hopefully, all of you will help it go viral.

But when you step back a moment from the narrow and obvious issue - namely Hillary's inability to cope with the duties of the office - numerous more serious issues and concerns arise about our political system and deep state control.

Why would anyone want to place in the oval office an aging 70 year old with a severe debilitating condition like late stage Parkinson's? We already have a president who spends over 180 days of the year away from the oval office playing golf or vacationing. He is obviously taking the word of staffers who set the presidential agenda and selectively feed him the information they want him to hear. Perhaps the people who really run the government liked having Obama as a figurehead president so much that a severely disabled 70 year old woman would be just the ticket for 8 more years of unaccountable and seamless control by unelected king makers.

But then perhaps we should elect the staffers who control the president, and whoever else within the deep state holds power over his or her selection.

In many respects, running Hillary for president is a clear fraud on the American people. It was never entirely clear in advance that Obama would be a passive figurehead. But with Hillary it is crystal clear and obviously pre-planned. The powers that be have known about her Parkinson's for at least four years. One wonders how much the Chicago billionaires - the Pritzgers and Arthur Crown - controlled Obama. But then sending their boy on permanent vacation begs a more disturbing and more obvious question. Why would a figurehead be of any use unless the billionaires also pick and control the staffers? What exactly does the plumbing of such control look like?

Elections are a public process. But control over staff is obviously a very private and secretive process. However if we have an active president who drives the agenda, he or she can control that process. However, if we have reached a such pass as a nation that presidents are selected for their total lack of interest or total incapacity, then we have lost all democratic control to unelected oligarchs.

High Plateau Drifter: The Market is Being Propped Up Until Nov 8

If the S&P500 rallies during the three months prior to a presidential election, the incumbent party has won 12 out of 14 times this condition has occurred. similarly, in 7 of the 8 elections where the S&P500 fell over the three month period the incumbent party lost. The overall predictive record for the S&P500 is 86.4%.

We all know that correlation does not necessarily mean causation. However, the deep state is unlikely to take the risk of a market plunge over the next two months. Of course, this sets up a potential short trade on the near certainty that artificial and temporary support is occurring and will end around Nov. 8. We know about the massive buying of SPY calls, forcing delta hedging by the writers. And we hear daily from ZH how the S&P500 is rising while the macro of earnings is plunging as if a recession had already started. It looks like perfectly predictable oligarch driven political demand. On the surface it looks like the government is not directly involved.

Oops!!

The Fed can't just buy common stocks directly without incurring significant political risk, so then who is carrying the load for them? The answer is the Swiss National Bank which is buying many billions of U.S. stocks, offsetting most of the steady selling by retired boomers who must sell to maintain their life styles.

But then the real question is what sort of dollar based transactions has the Fed entered into which effectively lend the the Swiss National Bank the money to do this for Hillary?

I have two months in which to place my bets that the divergence between S&P500 and macro ends around Nov. 8 with the SPY heading lower, and will be placing that bet.

High Plateau Drifter: "The Dudley"

High Plateau Drifter writes us,

This past Sunday, the Dudley, head of the Federal Reserve Bank of New York and the second most powerful member of the Federal Reserve gave a speech. Now usually the Dudley doesn't come out of the closet often (double entendre intended!) excepting only at turning points in policy and markets. He announced that the Fed open market operations - which he controls - would prevent the Dollar from rising, thus announcing that the USD will effectively enter the currency war allong with all the other currency warriors, thereby negating any rewards from that confict and joining forces behind the as yet slow paced race to the inflationary bottom along with all the other warring currencies.

Over the last three trading days in response the bond has fallen in price while the Dollar moved sharply lower.

On the daily chart the Dudley has given us a higher low on the bond, so following my rule, I have a small marker position in TBT to see what happens next. My thinking is that the Dudley has changed the environment, and as Goldman notes in the ZH synopsis, we are now using monetary policy to target the dollar. While this policy shift might not seem dramatic, it will prove to be of utmost importance. What with China, Japan, Draghi and all the others trying to destroy their currencies relative to the dollar, and the Dudley promising to keep pace, I no longer feel confident that I will get my hoped for significant correction to re-enter the GDXJ.

Of course this policy shift means more repression for savers and ever more severe wage repression against the Trump voters, as real inflation at about 7% keeps their real incomes and wages falling. Frankly. I am amazed that Trump would even want the job given what the next four years are likely to bring.

Getting the bond market right is the only thing that matters.

High Plateau Drifter On "Clinton Cash"

High Plateau Drifter writes,

Clinton Cash, the movie, is a remarkable documentary of abrupt Clinton policy reversals in individual cases granting approvals worth billions to be followed within a few days by lucrative speech opportunity for Bill Clinton or a big donation to the Clinton foundation from the recipient of the approval. Remarkably, her approval of projects in several African countries harmed the impoverished Black populations while corrupt elite dictators sold their countries natural resources to Hillary's friends on the cheap rather than develop them in open market bidding and under deal structures that would most benefit the native population. Same story in Haiti.

The movie has gone viral on Facebook, being the number one trending topic on their news feed, and with Sanders fan pages directing hundreds of thousands of viewers to the Utube video on its first day out.

Suddenly the private email server makes sense. These corrupt deals could only be arranged though extensive communication among a number of parties, and other participants would have to be involved to allow Hill and Bill plausible deniability. Also it amazes me that they sold out so cheaply, giving away approvals worth billions for a mere $500,000 or so each.

If this movie is widely viewed, Hillary is going to have a very hard time winning the election. And if Guccifer2 or someone else has and distributes the 30,000 emails she deleted it is curtains for Hillary. My sense is that most of the Beltway including Republican congressmen were aware of this activity and did nothing. The video will severly damage the credibility of our government including establishment Republicans who did nothing to stop it.

Thus I am watching to see how the bond reacts.

Watch it below,

High Plateau Drifter on the Government Bond Bubble

CP and I often discuss the problem of timing the top in the bond market. The bond market is the big kahuna. It is the one market that is so huge that governments will not be able to control it once it starts heading south. At the moment, and as long as the government can issue bonds and have the Fed purchase them, it will have ample funds to keep the S&P 500 elevated and counteract the steady selling by individual investors:

"According to Lipper data, U.S.-based stock mutual funds, which are held by retail mom-and-pop investors, posted cash withdrawals of $2.8 billion over the weekly period ended Wednesday; this was the 16th consecutive week of outflows.

All stock funds, including ETFs, posted an even wider $6.8 billion outflow last week to mark their biggest withdrawals since early May, while taxable bond funds posted $2.6 billion in outflows after raking in $2.5 billion the prior week. The perpetual question of who is buying remains especially after BofA reported earlier this week that its "smart money" clients sold US stocks for the third consecutive week and in 21 of the past 22 weeks, led by institutional clients' sales."

Baby boomers, who own directly and indirectly about 75-80% of the U.S. stock market have begun selling and will continue to sell to maintain their life styles. Fed governors and employees are academics. They are not multi millionaires. They and everyone they know in their social circles have university sponsored TIAA and CREF accounts and pensions funded by future stock market gains. So naturally, the primary real policy of the Fed is to keep the stock market elevated. Their worst nightmare is a clear inevitability - that at some point the boomers are going to panic and sell everything attempting to get out before the rush.

The big question then is what happens to bonds?

Right now the Fed is creating new money to buy treasury debt which finances the ongoing fiscal deficit. At the same time, corporations are issuing record amounts of new debt to finance share buy backs. In the Euro zone Draghi is buying corporate debt as well as European sovereign debt, most of which has no coupon and much that is in NIRP. Of course to the extent that the Fed purchases government debt with a positive coupon, the remittance of the coupon amounts back to treasury eliminates the interest cost on Treasury debt parked at the Fed. The positive coupon is the cheese that lures pension funds and insurers to take down slices of this thus far appreciating debt.

The reason I write this now is that the gold and silver markets are screaming that the end is near for bonds. The question is, how near?

I think everyone in the markets understands that the debt "purchased" with newly created money and held by central banks will never be sold into public markets and purchased by private investors. It is a translucent fig leaf to cover naked money printing. Printing that must continue for as long as governments continue deficit spending. After all, halting central bank purchases and offering all this sovereign debt to private purchasers would produce a dramatic hike in interest rates.

We can see that gold and silver now "get it." How long before pension funds, insurers and other balanced portfolios begin to listen to the gold and silver markets and begin to demand higher yields to compensate for the risks of higher inflation.

I don't have the answer, but I am watching for clues. I would be interested to know what you readers think.

High Plateau Drifter on the Death of the Welfare State.

My son-in-law is a Danish citizen and is very proud of his socialism which he wears as a badge of honor and as an emblem of his Danish nationalism. Yet even he acknowledges that Denmark is paying low IQ unemployed Danish girls to have babies just as we in the U.S. are paying low IQ unemployed girls and women to have babies, even as the economic necessity of having married women work depresses birth rates among women of average and higher intelligence. He also agrees that the average IQ and educational attainment ranking of Denmark is falling, just as it is here in the U.S.

Think about the process. Men with jobs and incomes, and who are thus subject to child support requirements, are not about to impregnate a welfare mother. Thus, overwhelmingly, the children of these low IQ women will be the product of unions with the least intelligent and most shiftless males. And we now know that the transmission belt for IQ is genetic to a correlation of .6 to .8. You cannot sustain a modern civilization on the backs of a population with and average IQ of 80. Indeed the reason I bring up Denmark is that with relatively little immigration the problem is largely due to low IQ White girls. The welfare state can undo thousands of years of darwinian natural selection for high IQ in the Northern wastes in just a few generations.

For a long time, the support obligation for this rapidly expanding class of unemployable citizens was offset in the minds of our elites by the easy control of their voting power to counterbalance the voting power of the productive middle class who might otherwise get uppity and impose restrictions on the elites. But ultimately, the cost of support for this rapidly growing population, including food, shelter, medical care, policing and essentially worthless but very expensive education, will overwhelm the resources available to the central state and lead to economic collapse.

We now have 50 million receiving one or more forms of working age welfare in the U.S. Public discussion of transfer payments tends to focus on the cost of old age retirement benefits and assumes, sub silentio, that the metastasizing share of working age on welfare cannot be solved because unlike the aged, the working age welfare recipients are young and potentially violent. The assumption seems to be that the aged on Social Security and Medicare can become the obligation of their adult children without those adult children becoming at a minimum angry and motivated voters. The childless aged can presumably live on the streets and gather at free soup kitchens.

In the long run, the welfare state will be forced to cut back on rapidly rising expenditures for medical care, education and policing and perhaps end the subsidy for breeding millions of low IQ babies as ever more jobs are exported over seas or the export stops when U.S. wage rates approach the levels of Myanmar or Bangladesh. But given the economic entanglement of so much middle class employment in providing medical, education, and law enforcement services to that population, the downfall is more likely to be cataclysmic rather than long, drawn out and bumpy. There are no easy policy shifts that will contain the escalating damage.

In polite society we are not allowed to even discuss the problem as it seems so terribly heartless, unfeeling and un-PC. But without a solution in place, is the problem to be left in the hands of loosely organized bands of red state gun owners when an economic crisis provokes the starving low IQ masses to attack? Or is that what the now empty FEMA camps and the militarization of local police forces is for?

It seems to me that this is the type of clearly foreseeable problem that love for our fellow man compels us to ignore. But it is the welfare state itself which will cause the problem and not the people.

High Plateau Drifter on Brexit

Throughout the Brexit campaign I have been at a total loss to understand the panic by the media and financial industry at the idea of the EU losing its grip. After all, the EU is just another expensive bureacracy that produces nothing. Its regulatory efforts are the opposite of free trade, interfering with comparative advantage, and imposing restrictions on commerce like a supersized medieval guild administrator. (Englishmen are no longer able to fish in half of their territorial waters, nor to grow certain breeds of apples, for example.) I see nothing but cost savings and economic advantages to its demise.

High Plateau Drifter on "The Narrative" and Trump

The unrelenting media narrative is that the economy is growing and everything is great. Of course, for those without real college educations the job opportunities are scarce and real wages are falling. Thus the subtext, and vehicle for social control in our atomized and socially disconnected society, is that if you aren't doing well the failure is you as a lone individual. The failure is yours and not a failure of the system. The propaganda message to every economic loser is that there is no opportunity to organize for changing the system because there is no broad base of support.

Trump is destroying this institutional narrative that allows social control of the economy's many losers. Getting Trump to abandon his "the economy sucks" narrative is far more important to the system than whether or not he wins the election. The last thing the current economic establishment wants, given that its primary business is the export of jobs and dollar denominated bonds in exchange for cheap goods, is to have the many economic losers understand that they are a majority with common interests. Whether or not Trump wins the election, his campaign theme will do irreparable damage to social control by the elites as the economy continues its down hill slide.

High Plateau Drifter: "The Yellenator Vetoes NIRP"

OK, so we hear all this talk about NIRP and rates going negative. Yet look what the Yellen is actually doing!!



The question then is, how long will T-bills be better than cash? And, what exactly is the Yellenator's secret plan?

High Plateau Drifter rides again!

The latest from High Plateau Drifter (most recently):

OK, help me understand how negative interest rates will spur growth.

Anyone with bank deposits will see those deposits shrink. Thus only those who are risk averse, desperate to avoid losses and unable to find non-confiscatory alternatives will hold deposits. Over the long run the falling deposit volumes will contract the monetary base, which in turn will slow the growth of M-2 over the longer term.

NIRP is a transparent attempt to provide an extra profit margin for banks holding needed transaction balances at a penalty rate while placing those balances in reserves with the Fed at a positive rate. Penalize transaction balances and you get fewer transactions. It is a subsidy legislated by a government agency which lacks legislative powers, and a subsidy or income stream that provides an incentive for banks to sit on the deposits rather than lending them out to productive enterprises. Of course, NIRP is driven by falling yields on Fed assets like interest sensitive treasury notes and junky mortgages which make payment for bank reserves at fixed rates parked at the Fed more risky.

This is deflationary.

For proof of quick trouble, I submit the chart of the US dollar after a few Fed heads began talking about the mere possibility of NIRP.

If the most important mission of the Fed is to defend the value of the dollar so that foreign countries will hold their reserves in dollar denominated instruments, it would appear that all this chatter about NIRP is causing world wide capital to flee the dollar. And, surprise, surprise, we are beginning to see the first signs of strength in gold and silver.

This will end badly, very badly.

Note that the "High Plateau" ain't lookin' so high, anymore!

Previously by High Plateau Drifter: Skeptics to the Ramparts, Fun on the Permanently High Plateau, Surfing the zero bound along the permanently high plateau, and Back To The Future!

High Plateau Drifter: "Back To The Future!"

The latest from High Plateau Drifter, who has not been seen in a while:

When I started investing in 1969, there was an oft heard mantra, doubtless held over from previous decades, which went “the longer the base, the more powerful the rally.”

It was to be used after a long decline in the market, and it was useful in the sense that a sharp rebound that begins as a fast down-move was more likely to be a short lived counter trend rally than the start of a new bull market.

But in truth we haven't had a “basing” formation since perhaps July of 2002 to April of 2003 on the SPX and NDX, and that was a very short base. We haven't seen a real basing formation since Greenspan began his tenure and turned into a crowd pleasing maestro. We haven't had anything even approaching a base since. To find a real multi year base you have to go back to 1946 to 1949 or from 1978 to the 1982, both of which were followed by rallies lasting two decades.

I was lucky because beginning in 1969, I invested all of my paychecks in a mutual fund, while wearing a gun for a private security firm and then during my stint in the Army. Then  from 1972 through 1982, I as able to accumulate a house, cars, wife, kids and a very nice stock portfolio at very low prices. In truth, the entire period from 1966 through 1982, which felt like a “permanently high plateau” at the outset as the Dow first hit 1000 in 1966, turned out to be a base with bargains galore in the later years as inflation drove wages and salaries ever higher and kept stock prices in check until Paul Volker's punitive interest rates took over and continued to keep stock prices low and provided true bargains during the last three years through 1982.

In contrast, the central policy of the last 20 years is that there shall never be another opportunity for young investors to accumulate investments at low prices over a period of years. Wealth must be confined to those who already have it. Whenever market distress produces deeply discounted bargains the Fed adopts a policy change which causes the markets to make those bargains disappear quickly in a wild policy driven rally which within a few months pushes prices up to overvalued levels utterly dependent upon continued Fed largess.

But now boomers are beginning to sell stock to maintain their consumption, selling which will continue for the next 20 years, and because the Fed needs to protect the value of the dollar so that banks world wide will keep buying Treasury Debt, the next big drop in stock prices is likely to produce a very long base, something we haven't seen for 34 years. And the key point is that investing in a basing environment like 1966 through 1982 is bi-directional and typically offers a number of 20% to 30% swings in both directirons. In other words you must buy the lows, sell the highs, go short, cover and then go long again.

Of course, if you start to see helicopter cash dropping on main street, then gold, silver and commodities will be the ticket as well.

So look for that “permanently low plateau.”

It could make you very wealthy.

Remember Skeptics to the Ramparts, Fun on the Permanently High Plateau, and Surfing the zero bound along the permanently high plateau.

Note that the titles of HPD's pieces were all sarcastic references to the extended market top that has been in process for more than a year.