Saturday, 25 July 2015

To live and die in the age of market fundamentalism

Future generations will view our current system of exponential debt and deliberate market manipulation as farcical in hindsight. Mainstream economics has abandoned any semblance of rational thought, and instead embraced what is best labelled as market fundamentalism. The core tenet of market fundamentalism is that markets are efficient no matter what, even if they are deliberately ramped by forcefed debt-driven inflows. Since markets are unmanipulable, we should deliberately ramp them as high as possible. The promise offered by the gospel of the bubbleheads is alluring; if everyone puts all their money in the stock market index and leaves it there, over thirty years the money will grow thirtyfold. According to the bubbleheads, this thirtyfold increase in wealth will come without effort, with the long time frame eliminating risk too. Individuals, pension schemes and governments all enthusiastically converted to market fundamentalism based on this promise.

But if everyone puts their money in the stock market, expecting to cash out thirtyfold down the track, where exactly will those gargantuan amounts of money come from? The market fundamentalists never say, as there is no rational response to this question, instead referring to "faith" and "belief". At best, the bubbleheads invoke the coming of magic robots, technology that will somehow increase productivity and median incomes at some ill-defined point in the future. To support their absolutely nonsensical assertions, market fundamentalists point to the observed thirtyfold increase in markets over the previous several decades.

However, there was a very simple reason for the previous thirtyfold increase in markets, one that is taboo to mention for market fundamentalists, namely an exponential increase in debt forcefed into markets. In a debt based monetary system, the money created by increased debt will inevitably find its way into financial assets. After all, where else would newly created money end up? New transmission sources for debt-fuelled ramping of markets have emerged - margin lending for individuals, stock buybacks for companies, and quantitative easing for governments. As debt has increased, so has the market cap and power of financial institutions, with banks and big corporations tied ever closer to government, in what is effectively a fascist system. One of the main drivers of forcefed inflows to markets over the last several decades, that is seldom recognized even by the rational, is the creation of a private sector pension system.

Fittingly, one of the first places such a system was implemented was Pinochet's Chile, at the behest of Milton Friedman. By law, a portion of employee pay is forcefed to financial intermediaries, with a large proportion then put into stock markets. This has several effects. It provides an immediate massive boon to financial intermediaries, causing resources to be diverted from actual enterprise into the financial sector. The emergence of powerful financial intermediaries increases income inequality, creating a boy's club that set each other's wages, as assets are controlled by these intermediaries. Furthermore, the stream of forcefed market inflows provides a boon for those already owning financial assets - the first entrants to the pyramid scheme - as the inflows temporarily ramp prices. So everyone's happy! Except when it eventually comes time to cash out the promised thirtyfold reward, at which point the outflows cause the markets to tank. But by that point Friedman is long gone, jetted off after taking a healthy fee. And of course, the inevitable crash is blamed on the market gods by the bubbleheads. The solution? More debt and an even higher proportion of incomes fed to financial intermediaries, of course.

The core assumptions of market fundamentalism are completely ridiculous when clearly stated, which is why bubbleheads so often resort to obfuscation and jargon. Expressed in plain English instead of Latin, their creed is laughable. For example, according to market fundamentalism, the size of a given market has no impact on its expected return. So if you ramp a $1 trillion market to $2 trillion, using mandated pension inflows or other government intervention, this will magically make the companies comprising said market twice as profitable, with twice as high cashflows and dividends. Why on earth would that be the case? Because markets. According to the fundamentalists, the structure of the market has no impact on its efficiency either. So if you have a handful of financial intermediaries setting prices, with these institutions incentivized to keep prices up, prices will still be magically efficient and not manipulated. Because markets. Neither does the composition of the market matter. If the index gets filled with China Waste Corporation and Panorama Synergy fraud schemes and turned into a wretched hive of scum and villainy, this will have absolutely no negative effect on expected returns according to market fundamentalists. Because markets. The most ludicrous tenet of all, however, is that debt levels do not directly ramp markets. So if you double the world's money supply, and markets correspondingly double, this means you are truly twice as wealthy.

Human history is the tale of how 1% control and leach off 99%, and through the millennia, only the titles of the 1% controllers change. The witch doctors, high priests, fund managers and banksters have one thing in common, namely no objective empirically provable skill. As a statement of fact, psychics cannot empirically prove their purported powers. In exactly the same way, scientific studies show that fund managers cannot predict the future and achieve risk-adjusted market beating returns after fees, cannot invest any better than a random chimpanzee. This is not a "belief", it is a simple statement of fact. Yet to this day, the sheeple 99% persist - grotesquely - in yielding to a 1% that is provably lying. Perhaps this is in their nature, to be endlessly shorn and slaughtered through the ages. And what of those unfortunate few that understand the prevailing scam of their time? In Teotihuacan before the fall, in the last days of Rome, or during the current global debt ponzi. Cursed with helpless prescience, spat upon by gods and mortals alike, you are raped and driven insane.

26 comments:

  1. Speaking of sheeple, have you noticed the recent talk about 'tax reform'? From all quarters, even the so called 'conservatives', all we hear is of tax increases. These government people believe they are next to Gods, free to spend whatever they want, whenever they want & no matter because they can just rip more from the taxpayer, or borrow ever more in your name.

    Unfortunately, they are effectively next to Gods, as few are clued in enough to know the consequences.

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    1. Both sides of politics are all-in on the bubble economy, both agree that increased debt is the solution to our debt-based problems, both sides are treasonous cowards hellbent on destroying the middle class. One day they will find their gods have feet of clay.

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  2. I remember Joe Hockey and his talk of a small tax on deposits due to the government struggling with debt along with society at large.

    In previous decades and on different continents, taxes on deposits were seen as clearly being 'end game' talk and would inevitably result in the citizenry violently overthrowing the government upon this being enacted.

    It amazes me that no one batted an eyelid when this was announced as a 'viable option' and given any consideration at all.

    I cannot wait until they follow the UK and subsidise housing purchases somehow to make it more affordable just to see how large the bubble gets before the chaos starts and the 'experts' all issue another set of retrospective predictions.

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  3. Hi Dr,

    “Mainstream economics has abandoned any semblance of rational thought…”

    Your discussion regarding market fundamentalism, how logic is out the window, I think (if it’s not too much of a digression from the topic) is matched by the Australian WHS laws in place at the moment.

    I recently was forced to do a white card course; a one day affair that shocked me.

    The two main premises of the course were presented thus:

    • All accidents can be prevented,
    • Everyone has a right to be safe (or words much like this for the second premise)

    As for the second premise the issue of rights is a huge complex topic so I will leave that alone.

    But as for the first, this is just a bald face lie that should be obvious to everyone!

    I and some others in the class argued strongly against this to no avail.

    I am livid that such irrationality as the first premise can be writ down in Australian law.

    I guess the white card course is just a Govt 1984 style re-education program: 2 + 2 = 5.

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    1. Hi TheForms,

      So they claim to be able to prevent 100% of accidents? No more stubbed toes or car crashes, a nation of infallible supermen and never-failing machines. Lol sure sounds great, all hail our wise WHS wizards.

      People never want to accept that most things are a tradeoff of some kind. In this case, for every marginal decrease in accidents, there would be increasing costs in terms of money and time. It's easier to pretend there is no tradeoff or cost to anything.

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  4. Yes, that is what they had in bold black and white: All accidents can be prevented.

    In terms of costs, imagine the cost when every construction worker in Australia (even school girls erecting a set for a school play had to do it, as I was told) or someone just wanting to fix up their shed, has to waste a whole day and pay for the privilege; some $130.

    The only way all accidents can be prevented is if we had perfect god-like knowledge.

    Yet, the implication of this law seems to me that mortal employers will likely be screwed if ever there is a serious accident on site that involves some factor that they did not have the foresight to include in their “Safe Work Method Statement”.

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    1. Sounds to me like poor English / semantics. I think the concept they were trying to convey is that "taken in isolation, any given accident is preventable".
      I don't work in OH&S, but I have sat through enough of this crap to have a go at decoding it.

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    2. I don’t think it was “poor English…” because the guy spent 10min trying to argue how they ALL are preventable.

      (He then proceeded to spill his glass of water on the table, to which I scoffed he should have had a barrier around that plastic, of course, cup!)

      As far as the regulation itself is worded they keep using the term “reasonably foreseeable” or “reasonably practical” Regulation 32-38.

      This implies all accidents are indeed NOT preventable just those that involve reasonably foreseeable risks.

      Yet, everything appears foreseeable after the fact.

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  5. Hi Dr.,

    I'm in the process of writing about an Aussie's story, in which he says some investors scammed him out of his company and took his assets. I was wondering about possible penny stock scamming at work. Do you think I could contact you via email to discuss this? My email is mike@3dprintingindustry.com.

    The story so far is this: http://3dprintingindustry.com/2015/10/01/hype-hangover-lessons-from-a-life-disassembled-by-3d-printing/

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  6. Imagine a City...







    Imagine a city where every home had on it's front lawn a piece of sculpture or an art installation.

    Imagine a city where each and every business invited artists to exhibit their work to the company's patrons.

    Imagine a city where instead of gifting clothing, electronics, chocolate, or cash, a work of art was given, and appreciated.

    Imagine a city where each and every home housed and preserved an art collection. Where insecurities over self-interests were dispensed with, and collections reflected those varied tastes.

    Imagine a city where glass, pottery, painting, photography. fibers, basketry, and even graffiti were embraced. Where the artists themselves were looked upon as a treasured resource. No matter their perspective.

    Imagine a city where any construction project involved multiple artists, in its' execution.

    Imagine a city which preserved its' creative heritage and embraced it.

    Imagine a city which understood, that capturing a slice of life had merit. But to alter a communities perspective to embrace all thought and belief, strengthened it, not weakened it.

    Imagine a city which led the World in cultural munificence which would then reap the reward of becoming a global mecca.

    Imagine a city which could step outside of what others were doing could walk the path of its' own making.

    Imagine a city where meetings to enact such change, needn't take place. Rather a spontaneous change came from its' citizenry itself.

    Imagine a city which artists flocked to; enabling them to create without fear of censorship or derision.

    Imagine a city not dependent upon their museums or art schools for their lead in any discussions of artistic merit, but rather the career artists themselves.

    I have imagined this city since childhood, as have most of my colleagues. Instead we've swum through muck, hoping such change would miraculously happen without distracting us from our labors. Or moved to the closest metropolis which appeared poised to take the plunge.

    Cleveland, like most cities, while not a blank canvas; is one, where the image it sports has faded beyond restoration. The time to paint over it has come. Shiny new unaesthetic buildings, are simply masking the rot.

    Marc Breed, Fine Artist



    "In the distant future, when America is a mere shadow of itself, who historically, shall be remembered? In sports, an argument can be made for Ruth, Chamberlain, Gretzky, Ali, et al. In Art, there is but one name, Breed."

    -Smithsonian Magazine

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  7. Hi Dr,

    I hope you had a good Christmas period.

    I have been interested in Aussie banks now for a while. I am no banking analyst, to be sure, but what I see is concerning and I thought I might mention it.

    EG:

    • Bank earnings are presently based on record low bad and doubtful debt charges.

    • Their net interest margins are worrisome when looking at the rising spread of corporate bonds over Govt bonds, and the Aussie CDS market is on the rise.

    • Banks off balance sheet business, since 2008, has risen 146% to $32trillion (if I read it right) as of last September: $32212861.6 million.

    The last point as I understand it is a notional value, not a value that actually changes hands although some of it acts the same as a “direct extension of credit”. Most of that is derivatives where one is, apparently, in an asset position and the other a liability; so they must offset each other and the market value seems benign. Yet the increase in this type of speculative activity since the 08 crisis is staggering and prompts the question: Why?



    Look forward to more of your thoughts and posts in 2016.

    Cheers.

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    1. Hi TheForms,

      Thanks, hope you had a great Christmas too. My take on Aussie banks is pretty simple. In order to justify current valuations, property prices (read: debt) must increase by 10% yearly, forever. The banks (read: our entire economy) therefore need property prices/debt to increase 10% yearly, forever. It's not even a question of "risk", the banks are absolutely reliant on something that is completely impossible. The government/bankers (read: criminal scum) will delay the reckoning at literally at any cost.

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  8. TheForms, the tail (the banks) wags the dog (RBA, ASX, Housing...Australian economy) as I see it- APRA can't even tell them what to do sometimes. Dr B, I always look out for you on ZH chat, do you ever use it?

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    1. Hi drift, yeah banks/rba/gov are really one and the same entity, in a fascist economy based on debt-fuelled asset revaluation. Re ZH chat, I'm spending less time on these things, for the sake of my sanity.

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    2. If you guys want to see the definition of revaluation fraud though, check out TFS Corporation (TFC.AX). It's entire balance sheet, all its "profits" and whole business model is built on fraudulently in its books using a price for its sandalwood around 30 times from current price. If I get back to blogging I'll write more.

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    3. Will do RE TFS, i know a little about them already, if not zh chat, how can I PM you? or can you send instructions to profjnf at yahoo.com - thanks!

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    4. hmmm hard to argue with cash ebitda at first glance with TFC.

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    5. Yes, thanks Dr. I will take a look at TFC.

      Cheers

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  9. Speaking of bank debt, RBA reported 'broad money' which is more or less total AUD money market debt, will, if it continues to grow at the current rate, top $2 trillion, with a T, by the end of 2016.

    This will be double its value since the end of 2007. So the 'assets' of Australian banks are growing exponentially & the total liabilities of the RBA are about as high as they've ever been, that's no coincidence.

    I thought John Howard & his inflation was shocking!

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  10. Hi Doc,

    I found your blog 4 days ago, and have eagerly consumed everything on here. I want to say thank you for such an amazing resource!

    You haven't posted a new article in a bit over a year, how can we get you back? This is an amazing important resource, so how many cupcakes do I need to send to you or how big does the bar tab need to be?

    Cheers again!

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    1. Hi McSpud,

      Thanks for those kind words, much appreciated. I'm not sure at this point when I'll have time to get back to blogging. It does seem somewhat futile tbh. But thanks again for reading and for your comment.

      Cheers

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  11. Hi Dr B. love your blog and I have been following it for about 2 years. I agree with your representations on LIC and revaluation fraud (e.g bringing undervalued assets on to the books and revaluing them). I agee with your broker/hedge fund market manipulation on small ASX listed stocks. All which have a flow through effect of boosting LIC NAV values ect.

    What I find difficult to understand is your analysis on, in particular, agriculture type stocks such as TFS you mentioned that Sandalwood is valued at 30x more. I have read the back of the financial statements and they are valued at USD 2500/ton (no increase in price from last year). This looks to be reasonable market value and I can not find any quoted price for 30 times less. From what I can gather they have used a fair and reasonable price for the product. Which would flow through to the valuations on the bio asset and freehold land (which is highest and best use). So please if you wouldn't mind, explain this to me as it doesn't make sense. Cheers

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    1. Sure I can elaborate. For starters, revaluation fraud has nothing to do with "undervalued" assets. By revaluation fraud I mean a scheme that is based solely on endless revaluations as opposed to eventual operational cashflows. These revaluations can be based on director estimates, phony deals with related parties, projections of eternal growth, manipulated market prices, etc. (In this sense the entire country of Australia is a revaluation fraud, with our profits/wealth based on debt-fueled inflation of property prices and its flow through effects.)

      TFS is a revaluation fraud as it is based on revaluing sandalwood rather than selling it, and scamming investors using said revaluations. The basic problem is that the demand for sandalwood is not infinite and perfectly price inelastic. There is no market for the final product at the quoted price in the quantities necessary. Take a look at "inventories of finished goods" in TFS annual reports. These go from $5.9m in 2014, to $7.6m in 2015, to $11.3m in 2016. Most recently in the September 2016 quarter they reached $19.4m, while "product sales" actually declined to $5.8m. The crap isn't exactly flying off the shelves. Even the small harvests to date cannot be sold to third parties at the quoted price, yet TFS is promising sales worth billions of dollars.

      And to support the fraudulent "market prices", TFS is forced to itself buy increasing amounts of its own sandalwood. After investor harvests, TFS offers a buyback of the wood at prices no one else will offer. Hilariously, some investors actually decline the offer, forcing TFS to put the product up for auction or public tender (one at "Gray's Online", lol wtf.) At these "auctions" and "public tenders", conducted after global marketing campaigns, there is but one buyer at the specified quantity/price. Guess who? Why it's TFS of course.

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  12. Genius Dr. B thank you for elaborating. They are artificially inflating the price and controlling the end-to end service of market making Sandalwood and servicing these MIT schemes.

    If it's inventory manipulation, I am curious in the case of BLX however, that doesn't strike me as a market that is easily manipulated. Increasing FG inventory can't raise profits (illegally or unethically) as they are getting tail wind benefits of FX and rising costs in the future. Is that my ignorance again?

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    1. Not inventory manipulation, rather manipulation of biological asset values. They have five million trees (and counting), to be sold to someone for billions.

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