Advancing Time: Looking At Financial "One-Offs" Driving The Economy

Advancing Time: Looking At Financial "One-Offs" Driving The Economy: Biden recently signed a massive aid package to give Ukraine and Israel a boatload of money. Much of this will be in the form of weapons ma...

Looking At Financial "One-Offs" Driving The Economy

Biden recently signed a massive aid package to give Ukraine and Israel a boatload of money. Much of this will be in the form of weapons made here in America. In short, this will be another way of delaying a recession while weakening the American economy over the long run. Indicators of where the economy is going are all over the place. I still contend that building real wealth is rooted in saving and building real things that have utility value rather than bridges to nowhere. 

Those of us accused of promoting doom porn and claiming history indicates markets revert to the norm have been wrong for a long time. In our defense, distortions in the markets can go on for a long time. Still, if history is any guide this time will not be different. Simply put, trees do not grow to the sky and at some point, the numbers do not work. Not all things move in a linear fashion or extend along a straight or nearly straight line, they can go parabolic, or collapse before our eyes. 

Lately, many people have forgotten the lesson the economy tried to teach us in 2008. Massive intervention halted that collapse, but this is not about the Fed, it is about the economy. Looking back through history, many of the things that have impacted the economy are now viewed as "one-offs" or in some ways a one-time event with a huge impact. This is one reason many comparisons between what is and what was have now been rendered obsolete. Still, certain laws of economics should and do, over the long term remain intact. 

Don't forget, that much of the financial machine runs on autopilot and not on a day-to-day basis. This means markets become complacent and tend to assume a trend will continue. After a decision is made as to how money will be invested over the next year or two investors have a way of turning their attention elsewhere. This is a key reason so much money is passively invested and discounts the long-term ramifications of reality. 

Also, important is the velocity of money. This is the speed at which money moves through the economy. It is important to remember a very small percentage of rich households at the top hold much of the money cast out into the world. This is often parked in investments and does not get "spent." This might explain why the speed at which money moves through the economy has been slowing. Meanwhile, no moss grows on the money poor people get into their hands. 

Liquidity and leverage also play a large role in economic growth. Leverage is often tied to loose and easy money policies. While people seem obsessed with small changes in interest rates, a far greater concern is liquidity. Without liquidity, markets can not function and true price discovery does not take place. There is a yin and yang aspect to the economy that short term can be forgotten putting investors at great risk. This centers around the opposite but interconnected self-perpetuating cycle that results from bad policies. 

To get a handle on where the economy is headed investors are generally forced to turn towards the news and the most recent data. Sadly, incompetent bureaucrats, people with agendas, and governments have a way of skewing data. Financial strength is different from the illusion of growth often touted in the GDP that results from a slew of methods to boost consumption. Below are examples of a few things  investors fail to see as the "one-offs" they are.

• Recently we have seen many new Employer Identification Numbers (EINs) being requested, this may be mistakenly seen as a sign of new business formations. In truth, many have existed for a long time and others not be viable. New regulations are driving this and it does not mean small businesses are thriving.
• In December of 2023, companies plowed over $18 billion into constructing manufacturing plants in the US ($220 billion annualized), up 64% from a year ago. This is up by 170% from December 2019. Even with government incentives, this cannot go on forever.  
• A matter that has not garnered enough attention is how economic problems from China may spill over and directly impact Japan. Over the years China and Japan have become major trading partners. Japan's direct investments surged as technology used to develop China's global supply chain exploded. The current problems haunting China are likely to spill over and damage Japan's fragile recovery.  

One of the most underrated drawbacks in our world full of people is that with a large population also come large problems. People have to be fed and taken care of. Cycles of population growth may generate ever more opportunities and new demand, but this is only part of a much larger economic equation. It can lead to quality not quantity being greatly underappreciated. Capital flows and factors such as brain drain due to taxation and legal protection are a big deal.

The goal of all investors should be to look out long term and not to lose a lot of capital until we get there. Capital preservation is job one while at the same time positioning ourselves to benefit during the final inning of an unending game. Considering the number of people that have made a fortune and then lost it, good luck with that.

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

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Advancing Time: The Ugly Future Of Social Security, Huge Shortfall...

Advancing Time: The Ugly Future Of Social Security, Huge Shortfall...: The ugly future of America's Social Security system is rooted in the fact major shortfalls ahead must be addressed in some way or anothe...

The Ugly Future Of Social Security, Huge Shortfalls Ahead

The ugly future of America's Social Security system is rooted in the fact major shortfalls ahead must be addressed in some way or another. This will not be easy and will most likely disappoint a lot of people. This is a massive program, as of February 2023, about one in every five residents in the US collected benefits from these funds. Many Americans rely heavily on Social Security benefits. The Social Security Administration claims that 97% of adults over the age of 60 are either collecting or will start collecting Social Security.  

Oh, what a tangled web we weave when the government gets involved. Even if I did not get that saying right, my takeoff on it has merit. A great example of a government program on its way to ruin is Social Security. What is called the unfunded "surplus reserve" is set to run out in 2033. Remember, promises can be broken or altered, and they will. Fixing this system many people refer to as a Ponzi scheme will not be easy.

The most obvious answers include removing the cap for high earners forcing them to pay more into the system. Raising the retirement age and cutting benefits. Another is to not pay what is promised to those who have saved and sacrificed over the years saying they "really don't need it." In other words, making people with savings ineligible, this is sometimes referred to as means testing.

In truth, inflation is already attacking the incomes of retirees based on how the CPI is figured, and adjustments in payouts already fall short of the real cost of living. Months ago when inflation was near its high, the website ShadowStats claimed real inflation was closer to 17.15% rather than the 8.5% that the media, the Biden administration, and the Federal Reserve claimed. This results in smaller raises and payouts for those on Social Security saving the system billions.

Having just seen the cost of caring for an aging parent, it is easy to join those saying the system to designed so that anyone with a long life is unlikely to pass much wealth along to their children. If you have money in old age, the system is geared to rip it from you. This is a brew of wealth transfer endorsed by society in the name of "the greater good." 

Comments below an eight-minute video ( https://www.youtube.com/watch?v=j1Bfxxhdn6g ) detailing the most basic facts about the wall Social Security is running into indicate most viewers get it. We understand the problem that haunts the Social Security system, Still, "getting it" changes nothing, the problem still exists. Boomers are draining the system. The comments below the video note;

• As a 37-year-old with 20 years of SS taxes behind me and another 20 years ahead of me... This video makes my skin crawl.
• The SS that you contribute is actually going to the current/next generations of retirees it’s not saving for you. Yours comes from the next generation contributing.
• We're living longer, the younger generations are having fewer children, housing is less affordable, income is not increasing, and the working class is unable to build wealth. Essentially, more people will need it and less will be paying for it.

As noted above, the unfunded Social Security "surplus reserve" is set to run out in 2033, a mere nine years from now. For such a widely used program, it’s a bit surprising that people in the US have put their heads in the sand and ignored the reality that this is no small problem. Also, most people know little about how it works. This remains the case even though most of the news around this program over the past decade has been predicting it’s doomed.

In Recent Years This Part Of The Budget Has Exploded

This is why millennials and younger workers often see the money being taken from their paychecks with the feeling they’ll never see it again. Sadly, the compact between generations to take care of each other has come under pressure for a number of reasons. The biggest two are difficult to overcome. Demographics and the idea individuals deserve a higher standard of living than necessary are coming into conflict.  

Of course, the concern over where all this is headed spans all of society. The truth is ugliness awaits most boomers nearing retirement, not only have they been lied to, but they also have to deal with rigged markets, corruption, and incompetent advisors. Anyway, you look at it, many people will not retire happy. As far as Washington and our politicians sorting out this mess, when all is said and done, this will most likely become another case of, "Thank God for the last minute or nothing would ever get done."

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Advancing Time: A bad debt is a bad debt is a bad debt

Advancing Time: A bad debt is a bad debt is a bad debt: Seriously, when will people begin to understand that a bad debt is a bad debt? There is a saying, "You can't get blood out of a tur...

A bad debt is a bad debt is a bad debt

Seriously, when will people begin to understand that a bad debt is a bad debt? There is a saying, "You can't get blood out of a turnip." This idiom strongly emphasizes the impossibility of obtaining something from an inherently lacking source. This phrase is often used in financial contexts but can also apply to other affairs where efforts are likely fruitless.

In short, this is its core meanings:

• "You cannot get blood from a turnip" refers to the impossibility of extracting something from a source where it is not available.
• It advises someone against wasting time and energy on an unfruitful endeavor.
• It highlights the unfeasibility of obtaining funds or resources from someone who doesn't have them.

A fool willing to make a loan to an idiot or someone who most likely will be unable to pay it back is trying to pick up pennies in front of a steamroller. Years of easy money and low-interest rates are coming back to haunt the greedy souls and concerns that chose to discount the potential risks and drawbacks of making such loans. Charging a high-interest rate doesn't guarantee great returns.

It seems this "stupid lending"has not only been going on for a long time but we may be reaching the place where it becomes apparent how much this activity has been going on. This is because more and more of those owing this money are defaulting on their obligations. the depth of this problem may have been papered over due to all the helicopter money that big government showered down upon the masses in recent years. 

It could even be argued this unprecedented growth in free and easy money acted as a fertilizer fostering a whole slew of bad loans. The idea and moral hazard of "too big to fail" added fuel to the flame and did little to deter this. So I ask, who are the parties making such loans? The answer is, more people, institutions, and governments than we would like to admit. We see them in student loans, credit cards, and more. Sadly when all is said and done some of the cost for these bad loans will be passed on to society in general.

Debt Is On The Rise And Much Of It Will Never Be Repaid

Years ago I wrote a piece titled, "Where Bad Debts Go To Die." Also, another posting that spills over into this area is one warning of the danger of dealing with "bad people" and how they will muck up your life. As for the motivation for this post, it flowed from a pop-up ad from a fella promoting a seminar that was "coming to a town near you." It promised he would show you how to make an oversized return on your money by investing or buying tax sale liens. This could be called a loan to the local government with the property as collateral. This is another area of high risk for the inexperienced or unsophisticated investor.

Companies and businesses in general play by a set of rules that can boggle the mind. Other than not meeting their payroll a situation that is immediately noticed, they can bob and weave in a series of moves to hide their true financial situation. Bringing in a new investor, or shafting a current supplier after a big order can extend the life of a dying business. Such a business can claim it is still solvent and reorganizing will set everything straight. If done legally, the top management can collect paychecks the entire time this unfolds.

The current risks of debt defaults are being massively discounted. A great deal of our economic system is about debt. It is important to remember not all debt is created equal. The current risks of debt defaults are being massively discounted. It is important to remember all debts and obligations do not come due at the same time and when a bill is not paid or defaults it often starts a long and drawn-out legal battle. This so-called collection process may extend for years without harsh consequences.

Companies and businesses in general play by a set of rules that can boggle the mind. Other than not meeting their payroll a situation that is immediately noticed, they can bob and weave in a series of moves to hide their true situation. Bringing in a new investor, shafting a current supplier after a big order are just a few ways to extend the life of a dying business.  By stalling on paying bills a business can claim it is still solvent and reorganizing will set everything straight. If done legally, the top management can collect paychecks the entire time this unfolds. 

Gone are the debtor prisons and much of the shame associated will not paying your bills. Still, debts unpaid are more than a transfer of wealth it is theft. This is the reality of modern life and the bottom line is that you never want to find yourself in the position of having to decide whether to most throw good money after bad by taking legal action against a debtor in the hope of recovering even part of what you are owed. 

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Advancing Time: Stock Buyback And Flash Crash Risk (Part 2)

Advancing Time: Stock Buyback And Flash Crash Risk (Part 2): Equities Could Fall And Not Come Back! A question lingering on the minds of thoughtful individuals is how "do we get ...