Wednesday, August 16, 2017

Hate


IMG_9854

Acrylic.  “Hate”  2017

Hate Equals Toxic Inequality

Wednesday, August 16, 2017

Why We're Doomed: Our Economy's Toxic Inequality

Anyone who thinks our toxic financial system is stable is delusional.

Why are we doomed? Those consuming over-amped "news" feeds may be tempted to answer the culture wars, nuclear war with North Korea or the Trump Presidency.

The one guaranteed source of doom is our broken financial system, which is visible in this chart of income inequality from the New York Times: Our Broken Economy, in One Simple Chart.

While the essay's title is our broken economy, the source of this toxic concentration of income, wealth and power in the top 1/10th of 1% is more specifically our broken financial system.

What few observers understand is rapidly accelerating inequality is the only possible output of a fully financialized economy. Various do-gooders on the left and right propose schemes to cap this extraordinary rise in the concentration of income, wealth and power, for example, increasing taxes on the super-rich and lowering taxes on the working poor and middle class, but these are band-aids applied to a metastasizing tumor: financialization, which commoditizes labor, goods, services and financial instruments and funnels the income and wealth to the very apex of the wealth-power pyramid.

Take a moment to ponder what this chart is telling us about our financial system and economy. 35+ years ago, lower income households enjoyed the highest rates of income growth; the higher the income, the lower the rate of income growth.

This trend hasn't just reversed; virtually all the income gains are now concentrated in the top 1/100th of 1%, which has pulled away from the top 1%, the top 5% and the top 10%, as well as from the bottom 90%.

The fundamental driver of this profoundly destabilizing dynamic is the disconnect of finance from the real-world economy.

The roots of this disconnect are debt: when we borrow from future earnings and energy production to fund consumption today, we are using finance to ramp up our consumption of real-world goods and services.

In small doses, this use of finance to increase consumption of real-world goods and services is beneficial: economies with access to credit can rapidly boost expansion in ways that economies with little credit cannot.

But the process of financialization is not benign. Financialization turns everything into a commodity that can be traded and leveraged as a financial entity that is no longer firmly connected to the real world.

The process of financialization requires expertise in the financial game, and it places a premium on immense flows of capital and opaque processes: for example, the bundling of debt such as mortgages or student loans into instruments that can be sold and traded.

These instruments can then become the foundation of an entirely new layer of instruments that can be sold and traded. This pyramiding of debt-based "assets" spreads risk throughout the economy while aggregating the gains into the hands of the very few with access to the capital and expertise needed to pass the risk and assets off onto others while keeping the gains.

Profit flows to what's scarce, and in a financialized economy, goods and services have become commodities, i.e. they are rarely scarce, because somewhere in the global economy new supplies can be brought online.

What's scarce in a financialized economy is specialized knowledge of financial games such as tax avoidance, arbitrage, packaging collateralized debt obligations and so on.

Though the billionaires who have actually launched real-world businesses get the media attention--Bill Gates, Jeff Bezos, Steve Jobs, et al.--relatively few of the top 1/10th of 1% actually created a real-world business; most are owners of capital with annual incomes of $10 million to $100 million that are finance-generated.

This is only possible in a financialized economy in which finance has become increasingly detached from the real-world economy.

Those with the capital and skills to reap billions in profits from servicing and packaging student loan debt have no interest in whether the education being purchased with the loans has any utility to the indebted students, as their profits flow not from the real world but from the debt itself.

This is how we've ended up with an economy characterized by profound dysfunction in the real world of higher education, healthcare, etc., and immense fortunes being earned by a few at the top of the pyramid from the financialized games that have little to no connection to the real-world economy.

Anyone who thinks our toxic financial system is stable is delusional. If history is any guide (and recall that Human Nature hasn't changed in the 5,000 years of recorded history), this sort of accelerating income/wealth/ power inequality is profoundly destabilizing--economically, politically and socially.

All the domestic headline crises--culture wars, opioid epidemic, etc.--are not causes of discord: they are symptoms of the inevitable consequences of a toxic financial system that has broken our economy, our system of governance and our society.
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Monday, August 14, 2017

Recession?


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Acrylic— “Transformation”

Sunday, August 13, 2017

Are We Already in Recession?

If we stop counting zombies, we're already in recession.

How shocked would you be if it was announced that the U.S. had just entered a recession, that is, a period in which gross domestic product (GDP) declines (when adjusted for inflation) for two or more quarters?

Would you really be surprised to discover that the eight-year long "recovery," the weakest on record, had finally rolled over into recession?

Anyone with even a passing acquaintance with the statistical pulse of the real-world economy knows the numbers are softening.

-- Auto/light truck sales: either down or off a cliff, depending on how much lipstick has been applied to the pig.

-- Restaurant/dining sales: down.

-- Tax receipts: down.

-- Retail sales: flat, stagnant or down, depending on the sector and if the numbers have been adjusted for inflation/loss of purchasing power.

-- Rents in high-rent regions: finally softening after years of relentless increases.

-- Consumer debt: hitting new highs.

-- Corporate profits: stripped of gimmickry, stagnant or down.

Those who study recessions know that employment often tops out just before the economy rolls over into recession. Strong employment is the last gasp of an expansionary phase.

There are several fundamental reasons why we might be in a recession that manages to avoid the official definition. The starting place is the artificial nature of the eight-year long "recovery" since 2009; in the view of many observers, the economy never really exited the 2008-09 recession.

Those in this camp look at fundamentals, not the stock market, which has been held up as a proxy for the real economy, when in fact it is only a proxy for financialization and official selection of the market as the (easily manipulated) signifier of economic vitality and prosperity.

Recessions are supposed to clear the financial deadwood--failed enterprises are liquidated, borrowers who are in default are bankrupted, and bad debt is wiped off the books via the acceptance of losses.

The story of the "recovery" 2009-2017 is that these clear-the-deadwood dynamics were suppressed. Rather than accept painful losses, the authorities saved bankrupt banks and encouraged a Zombie Economy in which zombie borrowers and enterprises are kept alive via low-cost loans and the masking of default via financial trickery: student loans that are non-performing, for example, aren't labeled "in default;" they're placed in a zombie category of forgiveness without actual writedowns of the debt.

If households can no longer afford to pay interest on new debt, the "solution" in a Zombie Economy is to offer them 0% loans. If corporations need to roll over debt, the Zombie Economy "solution" is the companies sell near-zero yield bonds to credulous investors.

If households can no longer afford to buy homes, the Zombie Economy "solution" is for federal agencies such as FHA to offer near-zero down payment mortgages and guarantee private lenders against any loss.

When these agencies get into trouble due to the horrendous costs of encouraging uncreditworthy borrowers to take on debt they can't afford, the "solution" is for the taxpayers to fund yet another $100 billion bail-out.

The stark reality is fulltime jobs, productivity and profits are all subpar. As I have noted many times, wages for the bottom 95% have gone nowhere since 2000 when adjusted for inflation. Households can no longer afford more debt unless it's at near-zero rates of interest.

Fulltime employment--the bedrock of consumer spending and borrowing--has barely moved in eight years. Part-time waiters can't afford to buy homes or new vehicles.

Wealth and income can only be generated in the real world by increases in productivity. Unfortunately for the "recovery" narrative, productivity is tanking.

Corporate profits are also going nowhere.

In essence, the "recovery" economy is a zombie economy living on great gulps of new debt that it can't service. As sales, profits and tax receipts weaken, eventually employment weakens, too, as employers trim costs by cutting positions, hours worked, etc.

Eventually, zombie borrowers give up trying to service unpayable debts, zombie companies close their doors, and the illusion of "growth" collapses in a heap of corrupted numbers and false signifiers.

The "recovery" game will shift to massaging GDP so it ekes out .1% "growth" every quarter until Doomsday. The Zombie Economy can be kept alive indefinitely--look at Japan--but it not a healthy or vibrant or equality-opportunity economy; it is a sick-unto-death economy of fake narratives (growth is permanent) and fake statistics (we've revised previous numbers so that, surprise, GDP is still positive.)

If we stop counting zombies, we're already in recession.
If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Check out both of my new books, Inequality and the Collapse of Privilege($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.


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Posted by Charles Hugh Smith at 7:48 AM

Friday, August 11, 2017

Eagle Attack

It must be in the air—no pun intended—this new painting of an eagle attack.  A sudden plunge and something dies.  Done in acrylic.

IMG_0759

Waiting for the skies to fall.


Sunday, August 6, 2017

A toast to the long, long, long rally

I did: To  life!

It’s been a ride of a lifetime—we’re all geniuses—the sun never sets—and it CONTINUES.  I did the above goblet in 2009—when this rally started.  Who would have guessed the Dow was going over 22,000!

Is it time for a new image?

And occasionally we glimpsed Janus and the Buddha

Is it?

Appearance and Reality

Beneath the glow of stock-market records, darkly bearish trends are lurking

By Ryan Vlastelica

Published: Aug 4, 2017 4:26 p.m. ET

Share

Recent weeks have seen sharp drops in the percentage of stocks above their 50-day moving averages

Getty Images

By

RyanVlastelica

Markets reporter

Major U.S. stock-market indexes are trading near record levels, but does that statistic simply mask an ominous picture that’s being painted behind the scenes?

Market breadth, a measure of how many stocks are rising versus the number that are dropping, has turned “exceedingly negative,” according to Brad Lamensdorf, a portfolio manager at Ranger Alternative Management. Lamensdorf writes the Lamensdorf Market Timing Report newsletter and runs the AdvisorShares Ranger Equity Bear ETF HDGE, +0.47% an exchange-traded fund that “shorts” stocks, or bets that they will fall.

“As the indexes continue to produce a series of higher highs, subsurface conditions are painting an entirely different picture,” Lamensdorf wrote in the latest edition of the newsletter. He noted that the year-to-date advance in equities — the S&P 500 SPX, +0.19%  is up 10.6% in 2017 — has been driven by outsize gains in some of the market’s biggest names.

Most notably, the so-called FAANG stocks, which refers to a quintet of technology and internet names, have by themselves contributed more than 28% of the benchmark index’s gain. Separately, megacap names like Boeing Co. BA, -0.23%  and Johnson & Johnson JNJ, -0.13%  have also outperformed the broader market.

“The good performance of these large companies is masking the fact that many stocks, including REITs and those in the retail sector, have already entered bear-market territory,” Lamensdorf wrote, referring to real estate investment trusts.

According to an analysis of FactSet data, 79 components of the S&P 500 are trading at least 20% below their 52-week high; a bear market is typically defined as a 20% drop from a peak. However, more than half the components are in what could be deemed bull market territory — at least 20% above their 52-week low.

Lamensdorf also cited a measure that compares market volume on advancing days to volume on days when the major indexes decline. This is a volatile metric, one that has both spikes and pronounced dips. However, since mid-2016, the spikes have topped out at progressively smaller highs. “This situation has occurred while the indexes have simultaneously hit higher highs; a classic negative divergence illustrating that large institutional sponsorship has not been following the indexes,” he wrote.

Separately, a read on market supply and demand from Ned Davis Research has shown weakening demand for stocks, despite major indexes continuing to grind higher, while the supply metric has started to rise. Rising supply and lower demand could indicate waning enthusiasm for equities at current levels.

There have been other signs of worsening technicals. Currently, 60.4% of S&P 500 components are above their 50-day moving average, considered a positive sign for short-term momentum. In mid-July, nearly 75% were, according to StockCharts. For the Nasdaq Composite Index COMP, +0.18% only 47.3% of components are above their 50-day, compared with 67% in late July, a dramatic swing lower.

Recently, nearly 6% of New York Stock Exchange- and Nasdaq-listed securities hit a 52-week low on a day when the S&P 500 ended at a record, according to data from Sentimentrader that was cited by Lamensdorf, who called this “an alarming percentage.”

He added that it was the second-highest level going back as far as 1965, and that “Similar spikes occurred in 1973 and 1999, both directly preceding significant corrections.”

Saturday, August 5, 2017

“After the Storm” from Athol Show in February 2017

The stock market may have four months of life left.  Personally, I would call hospice in.  Euphoria is a last stage symptom.  But I’ve lost all interest: mania is boring.  100% in cash.

Ron's Art Show-45 (63)

I will be blogging about my paintings from now on.  The above painting was done a few years ago in acrylic.  Since I’ve joined the Abstract Artists Group of New England.    

Ron's Art Show-45 (70)

Over the next couple of years I will be posting pictures to track my journey through the world of color.  As you can see with the above picture, my lips are sealed but i still dream of the “city on the hill”.

Until my next post . . .