Tuesday, May 22, 2018

EU Banks Remain Massive Problem

While the US and the UK were mired in political chaos during 2017 the EU claimed it was experiencing improved economic conditions. It appears this did little to move Europe in the direction of implementing long-needed EU and eurozone reforms, instead it merely fueled the complacency that has haunted the region for so long and has set the stage for another crisis down the road. How can anyone claim the situation is under control when a story in Reuters in the middle of last year claimed officials in Europe actually think that telling the public that they will not have access to their funds, even funds covered by official deposit insurance was somehow helpful to addressing Europe’s troubled banking system.  

This is a reminder to anyone thinking that Europe is anywhere close to adopting an effective approach to dealing with failing banks that they may want to think again. The policy that has been in the works for some time was floated out for a reaction less than two months after a run on deposits at Banco Popular contributed to the collapse of the Spanish lender. Judging by the continued reaction by investors and on social media, it appears that the EU has learned nothing about managing public confidence when it comes to the banking sector. That could be why even today the European Central Bank is having difficulty raising rates and has been unable to discontinue its program of asset purchases.

EU Will Not Address "Bank Failures"
All this makes a strong argument that nothing is really better or has been fixed in the Euro-zone and that the area continues on life-support. Why would the ECB leave its refinancing rate at 0%, and the rate paid on deposits parked overnight at the bank at negative 0.4% and the rate on the deposit facility at 0.25% if indeed the economy was on sound footing? The ECB even repeated that it expects rates to remain at present levels "for an extended period of time, and well past the horizon of the net asset purchases." While some Wall Street analysts started encouraging investors to jump into EU bank stocks last year, the fact is that there remains nearly €1 trillion in bad loans within the European banking system.  

This represents around 6.5%  of the EU economy.  That compares with non-performing loans (NPL) ratios in the US of 1.7% and 1.6% of gross domestic product in Japan. Circling back to the issue of the banking sector and public faith in these institutions, the idea that the banking public would ever be denied access to cash virtually ensures that deposit runs and wider contagion will occur in Europe next time a depository institution gets into trouble. The US learned the hard way in the 1930s and again with the S&L crisis in the 1980s, the lack of a robust national deposit insurance function to protect retail depositors leaves an entire society vulnerable to banks runs and debt deflation.

Until the EU is prepared to do “whatever is necessary,” to paraphrase ECB chief Mario Draghi, in order to protect retail bank depositors, the EU will remain far from being a united political economy. The truth is the Europeans appear to be playing a very dangerous game. On the one hand, EU officials talk publicly about getting tough on insolvent banks and even suspending access to funds for retail depositors.  On the other hand, EU governments are continuing to bail out banks and large creditors in a display of cronyism and business as usual. Making matters worse is that there appears to be a significant number of officials in Europe who seriously believe that denying retail bank customers access to funds covered by deposit insurance does not result in financial contagion.

In the US, the Federal Deposit Insurance Corporation (“FDIC”) begins to market troubled banks before they fail and makes an effort to execute bank closures and sales on a Friday to avoid frightening the public.  The branches of the failed bank are then open on the following business day as part of a solvent institution without any interruption in customer access to funds. The important thing is that all insured depositors are always paid out by the FDIC when the failed bank is closed in order to avoid precipitating runs on other institutions.   

In the same way, Eurozone politicians still refuse to deal with Greece’s mounting debt they cannot seem to accept the fact that protecting the small depositors of European banks is necessary to prevent the same sort of bank runs they saw in Cyprus and Greece. If this is not done runs on banks could intensify and spread to other countries in Europe.  Imagine that a large bank failure occurs in Italy and Italian officials would tell retail customers that they will not have access to any funds for several weeks. It is not difficult to see how this would expand concern about banks in other countries. It seems that regardless of the cost guaranteeing the banks are sound and depositors money is safe is the price that must be paid for preserving social order and the EU itself.

Monday, May 21, 2018

Italy Update - How Italy Got Into Its Current Mess

With Italy's bonds taking a hit and the country facing political turmoil this piece presents an overall look at how things got this bad. For years the world has focused on the "Greek Tragedy" that is far from over. While the ongoing misery of Greece continues to play out our eyes have been diverted from economic problems that fester and brew in Italy. Many people have failed to notice the Euro-zone debt crisis has taken a heavy toll on Italy where consumption and investment are expected to remain weak. The country’s economy has shrunk by around 10% since 2007 and output has regressed to levels not seen in more than a decade. While overall unemployment is around 12%-13%, with youth unemployment hovers around 40%. To worsen the overall situation an increasingly large number of refugees from North Africa are landing on Italy's shores.  

Smaller enterprises that are the country’s backbone continue to suffer from low sales, declining profitability, and lack of financing. Italy's banking system reflects the problems hampering future growth. Italian banks carry on their books around 200-300 billion euros of bad or doubtful loans, which has exposed inadequate capital and reserves. While counterparts in the U.K. and the U.S. have been able to deal with such loans Italian banks have been unwilling or unable to confront the asset quality problem. This has affected their ability to lend. Large companies can use capital markets for financing, but this option is less available to crucial smaller companies. This lack of credit in combination with the general erosion of Italy’s industrial structure creates little hope of a recovery and paints a grim picture going forward.

Italy Is One Of Several Nations With A Heavy Debt Load
Italy is the third largest economy of the Euro-zone after Germany and France, unfortunately, it holds the largest public debt totaling over 2 trillion euros. While Italy talks about its commitment to fiscal reform it continues to run a budget deficit of 3%. With government debt standing at $2.4 trillion dollars around 140% of GDP other problems are sighted. We see a government slow to pay its suppliers and weak in its ability to collect taxes, each year there is an estimated $160 billion in taxes uncollected.

Still, while this debt is a major factor hampering growth Italy’s problems are deep-rooted and fundamentally the economy has grown little since the introduction of the euro in 1999. It is clear that Italy still suffers from the legacy of its powerful Italian Communist Party in the time following World War II. This left Italy with rigid, high labor costs and multiple barriers to hiring and firing workers. A long-running government regulation requires the state to pay laid-off workers up to 80% of their normal salary while their employer restructures. Productivity improvements are also slow.  Italy’s economy is increasingly unbalanced. High-end producers, such as those in luxury products, and also advanced manufacturing have benefited from demand from emerging markets while other sectors, such as standard automobiles, domestic appliances and low-priced fabrics and clothing have found it difficult to compete with rivals from those countries.

Domestic appliances or white goods exemplify Italy’s decline. In 2007, Italy, once a world leader in the sector, produced 24 million appliances. By 2012, that was down to 13 million, the output of washing machines, dishwashers, refrigerators, and cooking appliances were down, respectively, by 52%, 59%, 55% and 75%. Italian manufacturers have been forced to shift production to lower-cost countries, resulting in large job losses. Italy ranks 65th out of 189 countries for ease of doing business in recent World Bank studies. Several key sectors are an issue, infrastructure, is in need of renewal lagging that of leading economies, and energy costs are high. Italy spends less than 5% of GDP on education, compared with a 6.3% average across OECD countries. As a result, only one-in-five Italians aged 25-34 completes higher education versus 39% for the broad OECD. 

In addition to Italy's other problems. it is burdened with a large corrupt and bureaucratic public sector. Italy is ranked 69 out of 175 countries by Transparency International in perceived levels of public corruption, comparable to Romania, Greece, and Bulgaria. Tax and other revenues are around 46% of GDP. According to the World Bank, the effective Italian corporate tax burden is around 65%. The European average tax on corporations is around 41%, with only France (64% and Spain (58%) in a comparable range. Switzerland and Croatia, both located close to Italy, have tax rates of 29% and 20%, respectively, which diverts investment from Italy. Even with high taxes, the quality of public services remains poor. Enforcement of a contract in Italy takes around three years, versus an OECD average of 18 months. Civil lawsuits take more than eight years to complete, compared to under three years in Germany.

Italy A European Debt Bomb Waiting To Explode
The truth is that in all reality Italy went bankrupt in summer 2011. Back then we saw interest rates on the national debt spike going out of control and Italy lost access to the financial markets. At that time the ECB and political authorities in Europe agreed to create around the country’s finances an artificial market to give the impression of stability and the appearance that Italy could work its way through its problems.

Italy, it appears is now forced to stay on this artificial support until the economic conditions improve and confidence is restored to where the country will have again access to real and normal credit markets. This most likely will never happen because not only is the country mired in debt but it is also a mess politically. The truth is not only the size of debt but the quality of the debt meaning the ability to repay it is an important issue. Because of the sheer dimensions of Italy as an economy and as a debtor, it dwarfs the problems posed by other countries that make up what has been referred to as the Euro-zone PIGS that have received so much attention in the past. All countries are not equal in size and the reason for their woes vary, however, propping up an economy is not a long term fix and the ECB loaning money to banks to have them purchase government-issued bonds is a scheme and instrument that allows international investors to over the years exit Italy in an orderly fashion.

All in all, it might be fair to say Italy is a European debt bomb waiting to explode. This is not sustainable and the country is held together only because of the direct intervention of the ECB which made over 102 billion euros of Italian bond purchases in 2011-2012 alone. This has continued since then and the sum has gotten much larger. Only through the LTRO have the finances of the Italian state been kept afloat. Way back in 2011 Nouriel Roubini warned that Italy needed to pursue an orderly restructuring of its debt to avert a default in coming years. Almost everyone agrees that Italy’s public debt is unsustainable and needs an orderly restructuring to avert a default, but as usual in the Euro-zone no action is happening. In many ways for Euro-skeptics Italy remains the Achilles heel of Europe, these skeptics are quick to point out that, once foreign investors withdraw, Italy will crumble under the weight of its debt.

Sunday, May 20, 2018

"Liquidity Trap" Differs from Standard Liquidity Problem

"Liquidity Trap" Versus A Liquidity Problem
A "liquidity trap" differs from the standard liquidity problem and this causes some confusion. That is why it is important to look a little closer at these two terms and what they represent. To many people the idea that to much money could make it a worthless commodity is abstract and difficult to comprehend. A  'Liquidity Trap' is a Keynesian idea and a term flowing from the Great Depression of the 1930s. The term, liquidity trap describes a situation in which policy interest rates, having reached the zero bound, are unable to stimulate demand. When expected returns from investments in securities or real plant and equipment are low, investment falls, and it is very difficult to generate growth by adding additional stimulus. 

A sign that the financial sector is constructing such a trap is the appearance of a great deal of malinvestment, leverage, and speculation. On the other hand. the standard liquidity problem resulting from a lack of money flowing into a market is something we are more familiar with and easier to get our heads around. It generally forms at times of uncertainty or when the risk becomes so great the cost of capital flowing into a market becomes too high and investors lose faith they will see a return on their investment. Simply put when faith exits the marketplace liquidity often follows so closely it leaves us debating which left first. While it may seem subtle at first the difference between a liquidity problem and a "liquidity trap" is important in that each impact the economy in very distinct ways.

 Interestingly the subject of a liquidity problem brewing has been raised by both the IMF and mentioned in a recent editorial by John Mauldin. The Mauldin piece titled, "A Liquidity Crisis of Biblical Proportions Is Upon Us" in which he warns of two serious problems
  • Corporate debt and especially high-yield debt issuance have exploded since 2009.
  • Tighter regulations discouraged banks from making markets in corporate and HY debt.
In his article, Mauldin sights a fascinating article written by Gavekal’s Louis Gave  titled, “The Illusion of Liquidity and Its Consequences.” In his article Gave pulled the numbers on corporate bond ETFs and compared them to the inventory, trading desks were holding and found dealer inventory is not remotely enough to accommodate the selling he expects as higher rates begin to take their toll. This is what both these fellas indicate may leave bonds in a situation where they collapse in a panic wave of selling when it comes time for companies to payback or rollover the massive amount of debt they have accumulated.

The crux of this piece is not only to point out the difference between the illiquid situation above but to point out how this has the potential to become the kind of "liquidity trap" we have been warned about. The fact that central banks across the globe have all signed on to and deployed " loose money policies" for almost a decade has made them even more impotent than they were in the 1930s. Part of understanding all this comes to how we define the terms "cash or reserves" and to wrap our heads around what debt really means. Economics is a rather puzzling science where plans often go awry when released into the markets and the real world where unintended consequences play havoc with wishful thinking. In reality,  this could be the result of few economists having a deep understanding of debt and the true magnitude of risk it transfers to the lender. This all flows into the bigger issue of how the promises of pension funds and annuity payments play into our debt structure.

A liquidity trap occurs when a central bank feeds cash into the private banking system and that money is hoarded, rather than being put to constructive use this can raise concerns about the likelihood of deflation and falling demand. Currently, huge infusions of cash from the Federal Reserve by way of its quantitative-easing programs have not created real growth and the job market has yet to recover to the point where all of those who lost their jobs as a result of the financial crisis have been drawn back into find full-time employment. I use the term "drawn back into" because without enough incentive to work or as a result of changes within our society many people have chosen to sit on the sidelines which gives us our current figures of low unemployment.

The low participation in the workforce has been used by those of us questioning narrative that all is well. Thus far, much of the money we have pushed out into the economy has not been used or deployed in the way central banks desire resulting in a buildup of capital in the reserves of depository institutions. This means depository institutions alone have accumulated massive excess reserves, this is money that is sitting on the sidelines rather than being loaned out into the economy. It should be noted that banks holding more in reserves does little to make the true economy, which is measured on Main Sreet more robust. Also, much of the money has been funneled into the stock market or speculation that props up the value of assets rather than into private sector growth.

The European Central Bank embarking on a similar course when President Mario Draghi announced that the ECB decided to lower the key interest rate as well as opening a €400 billion ($542 billion) "liquidity channel" to boost bank lending. The ECB has also undertaken an asset-purchase program, similar to the Federal Reserve's bond-buying agenda. Japan with its program known as "Abenomics" has also unleashed a massive quantitative-easing program and so has China. This means the world's leading economies are slipping into a liquidity trap increasing the risk that any sort of shock to demand or supply could send the entire global economy into a tailspin.   Usually, in a crisis, this forces investors and people in general into the ugly situation of having to sell which reinforces the reality that in a bear market you sell what you can, not what you want to.

Footnote; This is part one of a two-part series. Part two will explore the way a liquidity trap might play out and explore who could be the big winners and losers.

Tuesday, May 15, 2018

Often Mentioned 2008 Crisis Chiefly Forgotten

While reading an article about the economy and how things are different this time it occurred to me that while we constantly refer to it the often mentioned "2008 crisis" it has been chiefly forgotten and we have learned very little. By this, I'm pointing to the harsh reality and the details. The so-called great recession blamed by many on a crisis in housing is now so far in the rearview that many people see it as merely a reset from which we have moved on. We should not forget the auto sector also slammed into the wall because it was mired in debt and because of its ability to produce far too many vehicles.

On the other hand, it is possible to argue we have never moved on but have merely muddied the water with a mind-boggling amount of stimulus and newly printed money. Those in the financial sector of the economy in many ways have raped and plundered their way forward. A glaring example of this is how GM was saved throwing its bondholders under the bus. While supporters praise the solution as courageous, brave, and the "best solution" to an ugly problem they have chosen to forget the carnage that was left in the wake of the actions of the Obama administration. As proof, their action was the correct "thing to do" they point to how the company has performed since.

GM Bondholders Were Thrown Under The Bus! (click here for larger)

For a reminder and details of just one of the events that unfolded during that ugly time in our economy see the following article which appeared in 2009:

GM bankruptcy: End of an era

(CNNMoney – General Motors filed for bankruptcy protection early Monday, a move once viewed as unthinkable that became inevitable after years of losses and market share declines capped by a dramatic plunge in sales in recent months.
The bankruptcy is likely to lead to major changes and job cuts at the battered automaker. But President Obama and GM CEO Fritz Henderson both promised that a more viable GM will emerge from bankruptcy.
In the end, even $19.4 billion in federal help wasn’t enough to keep the nation’s largest automaker out of bankruptcy. The government will pour another $30 billion into GM to fund operations during its reorganization.
Taxpayers will end up with a 60% stake in GM, with the union, its creditors and federal and provincial governments in Canada owning the remainder of the company.
GM will shed its Pontiac, Saturn, Hummer and Saab brands and cut loose more than 2,000 of its 6,000 U.S. dealerships by next year. That could result in more than 100,000 additional job losses if those dealerships are forced to close.
Assembly lines at a plant in Pontiac, Mich., which make full-size pickup trucks, will be closed later this year. A Wilmington, Del.-based facility that makes roadsters for the Pontiac and Saturn brands will also close later this year.
Pain for retirees, investors
More than 650,000 retirees and their family members who depend on the company for health insurance will experience cutbacks in their coverage, although their pension benefits are unaffected for now.
Investors in $27 billion worth of GM bonds, including mutual funds and thousands of individual investors, will end up with new stock in a reorganized GM worth a fraction of their original investment.
Owners of current GM (GM, Fortune 500) shares, which closed at just 75 cents a share on Friday, will have their investments essentially wiped out.
In 2008 both GM and Chrysler were headed for bankruptcy but if they had gone bankrupt under chapter 11, most of their factories would have stayed open and they would have continued making and selling cars. Stockholders would have lost the value of their stocks, but bond owners who have the first claim to company assets and profits would have been paid off, if not in whole then at least in part. With Obama's decision to “bail them out” by taking them over stockholders still lost everything as did Chrysler’s bondholders and GM bondholders were also shortchanged. This is a lesson of government can and will change the rules without warning.

Now fast forward to this week where an article that recently crossed my desk contained the great line, "brutal assessment of the world economy is fascinating, but not for the faint of heart." In a rather of matter fact tone, the article outlined a slew of structural issues and problems we have papered over and failed to address. The thought those forgetting the lessons of the past are doomed to repeat it rapidly comes to mind. Welcome to the economy of the year 2018.

Tuesday, May 8, 2018

Stronger Dollar Is A Problem For Global Growth

Near the end of 2015, I wrote a piece that indicated a great deal of wealth would be flowing into America seeking protection from the ravages fostered upon it. A great deal has happened since then. Between Trump and many others talking down the dollar, the threat of trade wars, and the introduction of several cryptocurrencies the dollar has backed off a bit. Still, the dollar remains relatively strong and has again started to strengthen after the euro experienced a bit of strength based on the false narrative Euro-zone growth would be picking up. As for the yen's strength, I feel much of it has to do with money leaving China via Japan. Still, the dollar remains strong, this is driven by the fact many countries have even worse policies than those America's leaders have chosen to pursue.

Huge Number Of Short Positions Against Dollar Exist!
The world is currently engaged in a massive game of speculation that contains a lot of risks. A massive number of short positions have formed against the dollar which will cause it to strengthen as they begin to unwind. A stronger dollar acts like a magnet pulling wealth towards America and away from countries already having problems. If this turns into a self-feeding loop the dollar may soon get much stronger. Throughout history, strong currencies have attracted wealth and this means money and wealth from all over the world could be headed towards our shores. The money coming into America would flow into both bonds and stocks supporting lower interest rates and the stock market. Those of you who have read other articles I have written know I think the market is overvalued and the bond market is a bubble ready to pop, but as long as we remain the best and safest place to hide money do not discount the dollar.  

The dollar is the linchpin of global finance and has guaranteed itself a place at the table until dethroned. This means that countries like Japan and China which hold a lot of American bonds and thus dollars will be able to offset some of the pain of a weakening national currency, unfortunately, most countries are not in such a position. Making matters worse countries that are mired in debt often have tied or pegged that debt to the dollar this translates into a lot of economic pain if the dollar grows stronger and many will find themselves under a great deal of pressure just to survive.  Markets love stability and stable currencies because it provides an environment that yields the most benefits by reducing overall risk. The strengthening dollar may be sending a signal that the global economy is unstable.

Currencies are under assault in places where the economy is weak and the issuer is buried in debt they can never repay at real market interest rates. As the excessive flow of cheap U.S. dollars into emerging markets suddenly reverses and funds return to the U.S. looking for safer assets the pressure is ramping up. The central bank “carry trade” of low-interest rates and abundant liquidity used to buy “growth” and “inflation-linked” assets in emerging markets is unwinding. A global slowdown combined with rising interest rates in the U.S. and the Fed’s QT (quantitative tightening) has resulted in emerging markets losing their lifeline of inflows. These countries now face massive outflows made worse because they have squandered much of the inflows over the years rather than using it to strengthen their economies. The Argentine peso, Turkey's lira, and the Russian ruble are examples of this. Many Latin American and emerging market economies are also in this trap. The high fiscal and trade deficits financed by short-term dollar inflows have turned into time bombs.

We must add the stronger dollar to the problems the Federal Reserve and its new Chairman, Jerome Powell face at home because it threatens the global economy. Part of the current Fed strategy to ease this pressure has been to whack at the idea interest rates will soon rise but lately, the dollar has been edging its way higher and predictions of strength or weakness to come are in full swing. With this in mind, the central banks appear to be making every effort to reinforce feelings of economic stability by keeping currencies trading in a "quiet" range. It is in their advantage that people think the global economy is on sound footing as central banks across the world continued to print and pump out money in search of the "ever elusive growth" that never quite arrives.

Drawing Money Like A Magnet
Do not underestimate the power of cross-border money moving into a country as a powerful economic force. While the dollar has been described recently as the cleanest dirty shirt in the closet, or the best house in a bad neighborhood, both place it as the least worse option. The reality is other options fail to pass the smell test. This means what is coming to America is wealth and money seeking a "safer" place to take refuge from the coming storm. Today America has become a money magnet, Lady Liberty the symbol of America that stands in the harbor of New York while a bit tarnished is still giving people hope even if Washington is not overwhelming us with the same glowing feeling.

The dollar has a huge advantage over other currencies because of its role as the world's reserve currency. This makes it the "default currency" and by the size of its market, float, and liquidity the currency by which all others are weighed, measured, and often pegged. The chickens are coming home to roost for countries that face growing debt and policies that make them uncompetitive. Some of these countries are increasingly looking at ways to confiscate the wealth of their citizens, it is only logical that as people begin to realize the dead-end path taken by their homelands they take action to move their money to a safer place.  

Very Important Chart In Understanding The Dollar
The chart to the left is very important. Today four major currencies dominate the world stage, they are the pound, the euro, the yen, and of course the dollar. The remaining currencies remain small bit players in the overall scheme of things. John Maynard Keynes said, By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. As the central banks print like crazy to control interest rates on bonds they devalue the currency. While there are not many Bond Vigilantes there is a slew of  Currency Vigilantes and they are ready to make their presence known.

History has shown countries can steal wealth by way of various Trojan horse methods such as monetizing debt through printing massive amounts of new currency or new taxes. If you look close you will see the currency markets are beginning to reflect diminished confidence in the system central banks have created and as the currency games continue to ratchet ever higher it is becoming more apparent that much of the world financial structure is built on shifting sand as the schemes bankers have used for years to hide and transfer debt are coming under attack. If the current system crumbles it will culminate in a reset of the economic system across the globe. If people all over the world try to get out of their home currencies a surge in the value of the dollar is logical. In the end, this would not be the salvation of America or its economy but it sure would create a lift that we would be wise to take advantage of.

Friday, May 4, 2018

U.S. Companies Have Little Reason To Bring Jobs Home

Will Lower Corporate Taxes Bring Jobs Back?
The ugly truth is American companies have little reason to bring jobs home, the logic that lowering corporate income tax will create a massive flow of jobs to our shore is flawed. The structural issues that haunt America's competitiveness far outweigh the benefits of lower taxes. This means that we should not be surprised when the effort Washington has made to cut and reform taxes does not create a huge flow of jobs returning to our shores. Reality can have an ugly edge so it is best to not look too close or you may be disappointed. In this case, at the end of the day, the pathetic GOP tax bill boils down to borrowing more than a trillion dollars from the American public and exploding the deficit in order to pay higher dividends to wealthy private stockholders.

The tax bill does little to level the playing field when it comes to issues such as healthcare cost and over-regulation. This means the following continue to act as barriers to doing business in America.

  •        High Healthcare Cost
  •        Over-Regulation
  •        Unenthusiastic workforce
  •        Legal System And Litigation
  •        Environmental Protection

Healthcare costs remain one of the biggest factors US companies can point to as a reason to steer clear of manufacturing goods in America. Following healthcare is the issue of litigation and the army of attorneys lurking in the nooks and crannies always ready to spring an expensive lawsuit on American companies. These two impediments to doing business are two of the largest cost disadvantages America faces but a slew of others such as government regulations on the treatment of employees and pollution still haunt America. While tax reform was recently front and center we should not forget Washington has fallen short in many of these other areas.

For many years companies have offshored production and shipped jobs abroad but lowering the tax rate is simply not enough to bring the jobs back home. Of course, while we hoped and were told tax reform would mark a major shift in companies deciding to keep jobs here in America may not happen. This narrative that helped to win passage of the legislation and the many assertions made by politicians and their allies in the world of economics will not in itself lead to more investment. The higher productivity and the increased economic growth many expect could fail to materialize as capital flows into stock buybacks, real estate, commodities and speculative areas such as cryptocurrencies rather than flowing into equipment and factories.

Pulling factories back from overseas coupled with the threat of a trade war is causing people to question whether we are witnessing the end of what appeared to be harmonious global growth. The narrative that everyone is pulling together to generate a synergy that lifts all boats higher has been behind forecast of glowing growth going forward. Money reparated to America and jobs being created is something which many bulls were counting on to move the markets higher. Still, the idea that we are finally ready to kick on all cylinders is a myth rooted in desperation that tries hard to deny the fact that almost every economy across the globe faces some special problem.

While we were told tax reform would mark a major shift in companies deciding whether to keep jobs here or even bring them back to America that may not happen. This narrative that helped to win passage of the legislation and the many assertions made by politicians and their allies in the world of economics will not in itself lead to more investment. Corporate investment decisions are based upon the cost of capital and the prospective equity returns that new investment can generate, not how much capital is available. In our current cheap and easy money, environment capital is basically free. The problem is not funding new investments, but finding endeavors in which to deploy this capital. The economists who largely control the major central banks in the industrialized nations may be able to manipulate markets and cancel excessive debt through open market operations, but they cannot manufacture attractive investments. Sadly for several reasons stock buybacks has been moved to the front the list of corporate priorities joining other investments that are not productive investments.

The focus of this article is more about the tax reform and why it may not yield all the growth and promises many people feel it will generate. In the defense of many people who got cranked up on what the bill would accomplish we must remember the written details of the plan were not even available until just before the actual vote so they really did not know the devil hidden in the details. While over the years US companies have off-shored their tax books not only because they could but by doing so they saved a huge amount in taxes. Tax rulings have not only allowed this but have also made it easier by allowing legal sheltering schemes like having an Irish subsidiary own the technology patents and then charging your US tax entity a stiff royalty for their use. 

It also appears that wrapped inside and hidden within the tax bill is that any past violations of US tax laws can lead to both civil fines and criminal prosecution for the corporate managers and their legal counsel who designed some of the schemes companies have used in the past. this could prove very important in that the IRS is looking closely at many of the somewhat fraudulent scams used in the past for which no statute of limitations exists. Many analysts have failed to reflect the true nature of offshore tax schemes and how problematic it will be to reverse these complex transactions. To be clear, when the IRS disallows a sham offshore transaction it can be catastrophic and even result in a company having to declare bankruptcy. The implication of the 2017 tax law so far is that it begins a new era for future corporate taxes, but it may also compel recognition of huge past-due tax liabilities in coming years as many previously existing offshore corporate tax avoidance scams become exposed to IRS review. 

An article published by The National Interest delved into what it viewed as a false narrative about lower corporate taxes resulting in the repatriation of trillions in offshore cash. It claims many economists will be surprised to learn that the new tax bill does not actually require repatriation of offshore cash but instead it employs something called "deemed repatriation," which means the IRS taxes you on your unrepatriated foreign earnings whether a company brings the cash back to the US or not. This opens the door to the idea the process of reconciling offshore revenues with an IRS pushing a strong level of enforcement will be very painful for those who have aggressively avoided taxes in the past. Being forced to pay for past sins is unlikely to result in a wave of new corporate investments which increase productivity and economic growth. 

This will become a compliance nightmare for many companies that have participated in past tax avoidance transactions. Many corporate managers and their legal counsel may even approach the IRS and try to cut a deal, it may even result in a "formal tax amnesty" being proposed by the Trump administration. Most likely the government would consider offering an amnesty program only if corporations begin to display a real fear that they are about to be caught up in this vice begin to start screaming at the top of their lungs. It seems Treasury is already working on the implementing regulations for this “virtual repatriation.”

The earnings return provisions of the tax bill are of the highest priority followed by the anti-base erosion provisions, and then the worldwide system on Global Intangible Low Tax Income that sports the great acronym, “GILTI.” The Treasury is putting the "deemed repatriation rule" into place to raise the roughly $200 billion over ten years they need to move to a system which excludes most foreign-sourced active business income from US taxation. This aptly named “participation-exemption system” is something the American business community has been lobbying to get for years. As things stand the Treasury is hell-bent on collecting this money. So much for the idea that the new tax legislation will result in a cash repatriation bonanza that will benefit stock prices and the overall economy.

Wednesday, May 2, 2018

Stupid To Hold Cash? I Think not!

This post most likely would of never have been finished or seen the light of day if it had not accidentally been published while in the very early stage of a draft. Seeking Alpha on occasion republishes my articles and while checking comments on the site I noticed a story from The Heisenberg Report titled; Ray Dalio And the "Pretty Stupid" Cash Holders. The Heisenberg piece grew up around a statement made during a January 23, interview where Ray Dalio told CNBC that people holding cash are going to end up feeling "pretty stupid." The main reason I have returned to this subject and decided to carry finish this article is because the draft I deleted immediately upon seeing was really no more than a note or a piece of embarrassing incoherent dribble.

Banks Can Cut Credit Lines At Any Time
I found the statement made by Dalio intriguing not because I agree with it but because in many ways I disagree. Apparently, when he made the statement Dalio mistakenly thought the market was ready to pop big time and investors would lose if not "all in." A very important part of the last sentence was the word, "mistakenly," However, my disagreement is based not on whether he was making the correct call which is something we must always worry about before taking such advice but rather because I'm a fan of keeping cash in reserve and available whenever possible. Another reason is that while not a coward the "all in" thing take us one step too close to the notion we are gambling rather than investing and this tends to scare the hell out of me.

Cash Is King!
When someone uses the term cash I tend to think of it as money that is easily and rapidly assessable, wealth that is not tied up in an investment. This does not mean stuffing hundred dollar bills into a can and buried in the backyard or hidden away under the mattress. At times most of us are cash rich or cash poor depending on circumstances at the time.  Not being over fond of banks and being rather independent my experience has been that being able to do a deal fast without having to worry about it being contingent on getting a loan has a lot of merit. The ability to, "do it now" can yield far more than an investment based on hope or a prayer. In my line of work I do a great deal of negotiating and I have found one word people wanting to reach an agreement don't want to hear is "IF"!

We never know what the future will bring but if it is a financial crisis liquidity is generally one of the first things to dry up and when it does cash is king. This is why I will never call the holder of cash stupid unless it is during a long period of massive inflation. Cash is the big dog it gives the holder options. Cash can protects us from the many unexpected problems that can spring up in our path. When push comes to shove banks are not the friend of the common man and relying on their sense of decency is not a good idea. The agreements most of us are forced to sign when borrowing money is filled with little details and the devil hides between the lines. Cash is liquidity and holding it is generally not as stupid as allowing yourself to be hung out to dry when it suddenly grows scarce.

Footnote; An article exploring the relationship between currencies and the value of tangible assets is linked below.

Sunday, April 29, 2018

Euro-zone Growth Tepid - Euro Will Suffer!

The confession by Mario Draghi that growth in the Euro-zone may be on the wane comes as little surprise to us who have watched the area struggle for over a decade. Recently Draghi warned, "we can't declare victory over inflation yet." This is where Euro-zone watchers point to problems in countries such as Italy, Spain, and Greece. The fact is that for all the stimulus thrown at it overall euro-zone growth remains not so good. Many of the issues never addressed continue to haunt these economies while Germany's growth has been pushed front and center in an effort to mask the desperation growing across a broad swath of the region. This has become more complicated with the threat of a global trade war now hanging over Europe’s export-oriented economy.

The Idea Of Euro-zone Growth Remains Questionable
Dishing out many of the usual lines he has used in the past the President of the European Central Bank Mario Draghi played down concerns over softness in the Euro-zone economy. During a press conference, Draghi argued the economy of the 19-country currency block remained strong but acknowledged evidence of a “pull-back” from the exceptional growth readings it had previously experienced around the turn of the year. As the ECB moved to bolster expectations for a gradual withdrawal of the ECB’s monetary stimulus. It seemed clear the ECB did not want to upset investor expectations that its 2.55 trillion-euro ($3.09 trillion) stimulus program would end this year and its policy rate would rise for the first time since 2011 towards the middle of next year. 

While the US and the UK were mired in political chaos during 2017 the EU was busy claiming it was experiencing improved economic conditions. This did not move them in the direction of implementing long-needed EU and eurozone reforms but merely fueled the complacency that has haunted the region for so long and set the stage for another crisis down the road. How can anyone claim the situation is under control when a story in Reuters in the middle of last year claimed officials in Europe actually thought telling the public that they will not have access to their funds, even funds covered by official deposit insurance was somehow helpful to addressing Europe’s troubled banking system.  

This is a reminder to anyone thinking that Europe is anywhere close to adopting an effective approach to dealing with failing banks may want to think again. The policy that has been in the works for some time was floated out for a reaction less than two months after a run on deposits at Banco Popular contributed to the collapse of the Spanish lender. Judging by the continued reaction by investors and on social media, it appears that the EU has learned nothing about managing public confidence when it comes to the banking sector. That could be why even today the European Central Bank, as expected, left interest rates unchanged saying it would continue its program of asset purchases through September, "or beyond, if necessary."

The banking issue circles back around and infecting and poisoning how money flows within the Euro-zone. It is only logical that wealth would flee the weaker countries and seek refuge where banks are thought to be at least stronger if not solvent. This has become an increasingly dangerous game as EU officials talk publicly about getting tough on insolvent banks and even suspending access to funds for retail depositors while countries are more or less forced to continue bailing out troubled banks and large creditors in a display of cronyism and business as usual. The ugly choice is to let the bank fail which would unleash a wave of bank runs that would spread into total chaos.

Contrast the EU proposal with standard practice in the US, where the Federal Deposit Insurance Corporation (“FDIC”) begins to market troubled banks before they fail. Bank closures and sales usually occur on a Friday with the branches of the failed bank opening on the following business day as part of a solvent institution without any interruption in customer access to funds. All this feeds into and creates a strong argument that nothing is really better or has been fixed in the Euro-zone and that the area continues on life support. The fact is the ECB is trapped in a box of its own making or why else would it leave its refinancing rate at 0%, the rate paid on deposits parked overnight at the bank at negative 0.4% and the rate on the deposit facility at 0.25%.  

While some Wall Street analysts started encouraging investors to jump into EU bank stocks last year, the fact is that there remains nearly €1 trillion in bad loans within the European banking system. This represents around 6.5% of the EU economy. That compares with non-performing loans (NPL) ratios in the US of 1.7 percent and 1.6 percent of gross domestic product in Japan. Circling back to the issue of the banking sector and public faith in these institutions, the idea that the banking public would ever be denied access to cash virtually ensures that deposit runs and wider contagion will occur in Europe next time a depository institution gets into trouble. The US learned the hard way in the 1930s and again with the S&L crisis in the 1980s, the lack of a robust national deposit insurance function to protect retail depositors leaves an entire society vulnerable to banks runs and debt deflation.

Unfortunately, much of the problem is rooted in the fact the euro itself was constructed on a weak and flawed foundation. Any currency joining and binding states or countries together must allow for an adjustment to send back funds to its weakest part or eventually it will become so unbalanced it will fail. The United States does this by collecting taxes on a federal level and sending back money and aid to areas that are economically weak and need help. In the same way, the EU has still refused to deal with Greece’s mounting debt it cannot seem to accept that protecting the small depositors of European banks is the price to be paid for preserving social order and even the euro itself. The bottom-line was revealed in Draghi's comment: "An ample degree of monetary stimulus remains necessary." This most likely means the euro will suffer more pain going forward.

Thursday, April 26, 2018

World Currency Will Be Part Of The Financial Endgame

Many Countries Endorse A Single World Currency
The introduction of a single "World Currency" is an idea that has been growing and looms as a real possibility in the near future. Many of us see this as a major part of the "endgame" or something that will constitute a needed reset to a global economy that has gone off track. Throughout history, prior to an economic collapse, the masses and society tend to believe it is financially stable. Only after the economy is in a freefall over the edge of an abyss does reality set in. It is not by accident that blinders have been placed upon us but it is the result of distractions being thrown in our path by those wishing to hold onto their power over us. It is wise to remember that when things do become critical, those in power will not be kind to us but that we will be thrown under the bus without a thought.

Over the last one hundred years, equity markets have been a primary tool used by the public to measure the economy. When markets rise even in spite of negative fiscal indicators, the masses become optimistic. In many ways, the stock markets have become a kind of switch the elites can push at any given time to energize the masses distracting them from the dangers lurking in their economic future. During every upswing of stocks the elites claim they see the "green shoots" of prosperity, however, these shoots seem to always turn brown and die. In fact, we have been leaping from one recession to another even though central banks claim they now hold the key to generating true and honest growth. The truth is the current stock market bolstered by easy money and stock buybacks is a poor reflection of the real economy and what is happening in many homes across a broad swath of America. 

History indicates that establishment economists trained and educated in the ivory towers of academia are perhaps the most useless of all analysts and perpetually wrong. Only independent analysts have ever been able to predict anything of value when it comes to our economic future and that is because they have the advantage of not being blinded by the propaganda and brainwashed by lies flowing from those in control. Time and time again it has been proven the appearance of prosperity means nothing if the fundamentals do not support the optimism. A bullish stock market, a high dollar index and a low unemployment mean nothing and are unsustainable if generated by false methods and fiat money. As we have seen throughout history fundamentals matter and the markets cannot hide from true price discovery forever. 

The stock market with its boom and bust cycles has proven to be a false indicator of what is really unfolding. Manipulation by the central banks has even rendered this indicator of economic health as useless. The problem we face is the horrible options in fiat money, massive debt, and the growth of international businesses have all come together in an explosive way. The banking elites are positioning themselves to avoid blame for this disaster while the rest of us are being sold on the most elaborate recovery con-game ever conceived and perpetuated by those with the most to gain. They have indicated to the public their desire for an institution of a truly global centralized economic system and a highly controlled world currency framework dominated by a select cult of banking oligarchs. This in effect makes the rest of the human race their slaves.

Magazine Cover Touting Worry Currency
A recent article referred to a 1988 write-up in the financial magazine 'The Economist' titled “Get ready for a world currency by 2018.” It outlined the framework for a global currency system administered by the International Monetary Fund. This new system was and is floated on the premise that only by erasing all national economic sovereignty can true stability be obtained. It requires governments to borrow from the world central banking authority, rather than printing currency in order to finance their infrastructure programs. This dovetails with efforts to create such a system under the total control of the IMF which should raise the concern of every American. It comes at a time when we have been warned and seen in recent months a hard push to destabilize the dollar as the reserve currency by China and several other countries.

 For years the IMF has been openly discussing the ascension of the SDR to replace the dollar as the world reserve currency. Many developing nations that are deep in debt are already asking for help from the IMF due to volatility across the world and the BRICS are pushing hard to remove the dollar as the world reserve. This makes it a question of when such a currency reset will occur and in its wake bury the majority of the middle-class and poor throughout America. There is no way around it, the elites are positioned and merely waiting for a geopolitical disaster or catastrophe so overwhelming that when the time arrives they can portray themselves as the rescuing heroes in the midst of chaos.

American Dollar Constitutes Bulk Of Reserves
The demise of the dollar harkens back to when President Nixon severed its tie to gold. First, it’s crucial to understand that at the very core of our global economy is a financial system dominated by the U.S. dollar which has been deemed the reserve currency.  The USD is unique in that it grants the U.S. the privilege of having a national currency which at the same time serves as the global reserve currency. This was solidified toward the end of World War II with the Bretton Woods agreement, which was accepted because the U.S. agreed to offer sovereign nations holding dollars a right to exchange these dollars for gold at a fixed price, however, with Nixon's action in 1971 the USD became a fiat currency backed by nothing, the supply of which can be arbitrarily altered and manipulated by a group of unelected bureaucrats in charge of the Federal Reserve. This money system represents the most powerful tool on the planet. 

The new world order and globalization which has been pushed by many world leaders and the rich elite touting that "larger, more cooperative governments under one financial unit will benefit us all” plays into the world currency scenario. Many Americans are oblivious to the fact we gain a great deal by our status of the dollar being the reserve currency by which all others tend to be measured. This means we have a great deal to lose if it is dethroned and stand to suffer the most if the dollar declines in value. Those who will be crucified are the middle-class Americans whose wealth is locked into or are holding long-term USD bonds thinking they are a safe investment.

Currently, a huge mismatch exists between the use of the dollar in the global financial system and the U.S. share of the world economy. This is why China, Russia, and several other countries that are acutely aware of this have been taking major steps to transition to a more multi-polar currency world. This is also why we should prepare and expect that in coming years the world will adopt a completely different global financial system from the one chaotically birthed in the 1970s and when this occurs the USD will lose its total dominance on the world stage, resulting in major implications for America. While many people see this coming, several opinions exist as to how it will unfold and while we engage in speculation, nobody really knows what the world financial system will look like in ten or twenty years down the road.

Few of us who continue to cherish freedom can get excited about transitioning away from the USD and being placed under the thumb of the IMF or an oppressive nation-state currency controlled by a country like China. That is why many of us think the dollar will be ripped from us during a time of crisis when Americans are open to accepting any solution offered to them as a way to ease their woes. While people point to cryptocurrencies as an option we should remember politics plays a massive role in how this all unfolds. To Americans the fate of dollar dominated assets and their value when the dust finally settles is a big concern. It is my contention the transition will take a far greater toll on paper assets than tangible goods. While recognizing the flaws of the dollar and our current system I have come to believe the other currencies such as the euro and yen hold even less merit. Regardless, and in the end, we should expect to be told and not given an option as to what is coming.

Tuesday, April 24, 2018

Senate Votes "Any Distraction From Business As Good!"

Modern Business Has Way Too Many Distractions
A sign of the times is that any distraction from business is a good one. Cost be damned! Those advocating this "anything goes" attitude and who are telling management to "to get over it" have forgotten the importance of being focused on a task. This article was motivated in reaction to Sen. Tammy Duckworth (D-Ill.) saying recently that she is working with Democratic leadership to change Senate rules in order to allow her to bring her baby onto the Senate floor. In an interview with CNN, she said the rules governing children brought onto the floor in the Senate are "outdated" and reflect a time before women, especially mothers, could be senators. True to her pledge Duckworth who is the first senator to give birth while in office later this year has put this issue before what is important to many Americans and moved it up the list of priorities.

"For me to find out that there are issues with the United States Senate's rules where I may not be able to vote or bring my child onto the floor of the Senate when I need to vote because we ban children from the floor, I thought, 'Wow, I feel like I'm living in the 19th century instead of the 21st, and we need to make some of these changes,'" the Illinois Democrat told CNN. "I mean, this is ridiculous. We're in 2018 and we're still dealing with this in the United States of America. We're better than that. And, certainly, this speaks to the problems we have in this country with the need for family leave and certainly more family-friendly legislation in this country."

An Almost Giddy Sen. Duckworth Makes It About Her!
Duckworth went on to say that Democratic leaders in the Senate have been supportive of her effort to request an official rules change to allow any senator to bring a child onto the Senate floor within the first year of the child's life. Well, it has come to pass, Sen. Tammy Duckworth’s newborn daughter, Maile Pearl Bowlsbey, has become the first baby to get Senate floor privileges. With unusual speed and in rare bipartisanship, the Senate unanimously approved the resolution crafted by Duckworth, to allow toddlers under the age of one on the floor during votes. It should be noted you only get this kind of unanimously approval or vote is when the Senate is in full pander mode.

After Duckworth made Senate history on April 9th by becoming the first sitting senator to give birth while in office. Rather than take a formal maternity leave she has decided to stick around Washington in order to be available to come to the Senate in case her vote is needed, which apparently is something she could not do unless her newborn child is in her arms. In thanking colleagues from both parties, Duckworth said in a statement, “By ensuring that no Senator will be prevented from performing their constitutional responsibilities simply because they have a young child, the Senate is leading by example and sending the important message that working parents everywhere deserve family-friendly workplace policies. These policies aren’t just a women’s issue, they are a common-sense economic issue.”

Few People Work Really Hard - We Need More Focus
While many people might think my reacting with angst is an overreaction I would like to argue that this continues to set the tone that any distraction from business is a good one or at least acceptable. This is not an attack on women or new parents, animal lovers or people that love to talk on the phone, it is about work and focusing on the job at hand. This attitude that bringing your personal life into the workplace is acceptable has become all to commonplace throughout society in recent years. Articles and news stories about people taking their pets to work almost screams out and encourages other workers to ask for or even demand such a right. An article in USA Today was quick to point out that, according to a Virginia Commonwealth University study, employees who bring their dogs to work produced lower levels of the stress-causing hormone cortisol.

This claim of a calming effect might be presented for any action that would allow a worker to kick it down a notch or two whether it is a longer break, midday naps, the right to do online shopping from the office computers or unlimited cellphone use. The study sited above was conducted by Randolph Barker, a professor of management, and covered a dinnerware company in North Carolina, which sees 20 to 30 dogs a day on its premises. As the workday went on, the research found average stress level scores fell about 11% among workers who had brought their dogs to work, while they increased 70% for those who did not. 

While the numbers may be considered questionable according to a 2008 national poll of working Americans 18 and older by the American Pet Products Manufacturers Association, 17% reported their company permits pets at work. In this post, I'm using the terms "business and work" as somewhat interchangeable. 
        Work is defined as; activity involving mental or physical effort done in order to achieve a    purpose or result.  "he was tired after a day's work in the fields"
synonyms: labor · toil · exertion · effort · slog · drudgery · the sweat of one's brow. Yes, this means that sometimes it is dirty and sometimes it is difficult and often work is not always fun. That might be why they call it work!

When someone takes a job and accepts doing the work it entails that take on a responsibility to those they are working for. In the case of the United States Senate, they are supposed to be working for the American people at no small cost to taxpayers. When it comes down to responsibility sometimes life is not all about "touchy-feely" but actually getting the job done and getting it right. Sadly, most polls show the Senate and most of the people we have sent to Washington at great expense has failed to accomplish the job they have taken it upon themselves to perform. Until they are able to improve their job performance it might be best if they avoid distractions and encourage others to do the same.

Sunday, April 22, 2018

Computer-Generated Models And Images Blur Reality

Computer generated models and images have advanced to where they blur reality and diminish the need for humans to act as spokespeople or to represent organizations. Back in 2011 Swedish fashion chain H&M admitted to using computer-generated models to showcase collections on its website. Since that time the ability to create computer generated images has only gotten better. We have advanced to where it is difficult, no, it would be more accurate to say impossible to always know if what you are seeing is really a person or simply the image of one. Drilling down into this issue forces us to where creativity, marketing, and price-point intersect and that has huge implications for society going forward. This brings front and center the question of what to believe in a world of fake news and false flags where what we create is limited only by our imagination.

Real Or Not? Click here to take the test
The virtual models H&M generated look completely human, but upon inspection, if you look closely, they might all have the same body shape and pose with a real model's head superimposed on the body where the skin tone has been digitally altered to match her complexion. This step where the company has gone past "photoshopping" has created a bit of controversy with H&M drawing criticism for creating a false reality for its customers and creating an unrealistic body image for women to live up to. At the time Swedish website Aftonbladet first noticed the uncanny similarities of the models. Hacan Andersson, a spokesman from H&M, confirmed this by saying:
"It's not a real body, it is completely virtual and made by the computer. We take pictures of the clothes on a doll that stands in the shop, and then create the human appearance with a program on a computer."
Andersson argued the company made the choice to use the images of computer-generated models because it simplified the process of the photoshoot and also that it allowed customers to focus on the clothes rather than the models. He acknowledged, "The result is strange to look at, but the message is clear: buy our clothes, not our models."

The Fact Is Computer-Generated Images Often Appear More Real Than Reality
Computer-generated imagery, more commonly known as CGI, encompasses the tricks and the ability to generate and manipulate images. This creates some interesting possibilities going forward as well as greasing an already slippery slope with endless possibilities. Eventually, this could lead to a form of "Photoshop" on steroids. Anyone familiar with Photoshop knows it delivers the magic that helps people bring their creative vision to life. By editing raw image files and photos by using state-of-the-art photo editing not only can people create compelling high-dynamic-range images (HDRI) that can be used for a variety of purposes but can also mislead viewers as to what is real.

It appears this is just the beginning, by adding distinct characteristics from individuals that society views in a very positive light to a CGI it is not difficult to imagine that we might extend some of that same positive feeling to that image. If this is true then it is not difficult to envision both politicians and others "scrubbing" their voice and persona ever so slightly as to improve the impact they have on advancing their cause. Slowing their speech, deepening the tone of their voice, shaving off a few unwanted pounds. Manipulating people in this way could be looked at as a form of propaganda but in reality, it is only one step farther than we already go when we do extreme editing of a news clip to sway public opinion.

The future of TV news could be very different in that it could be completely computer-generated. Take for instance, the many imitation sounds engineered into some electronic keyboards today. While an audiophile may be able to tell the difference the average listener can not and most people don't care if it results in a less expensive download for their iPod. Since the same thing can be said about music and even art this can be scary, especially if you are the person suddenly discovering that a robot could take your job. In Vegas, stage shows used to all have live orchestras but now many musicians have a difficult time finding work on the strip. We have also seen the electronic equivalent of human-generated music gain a foothold as a genre and become a market all its own. Voice actors are already feeling the heat as the encroachment of synthetic voices hit the industrial/corporate market and push into audiobooks.

The ability to produce a human-sounding voice with all the inflections, nuances, and timing that makes it interesting often requires as much technical artistry from a software engineer as it does from an experienced voice actor, however, at some point computers will be able to take over and perform this task as routine. This should not come as a surprise to anyone who has been watching recent trends in technology. A quick search for the words "voiceover" and "computer voice" will bring you rapidly up to speed. Apple has even designed into its iPhone a feature called voiceover which the visually impaired find very valuable, it reads the words on the screen out loud in what Apple calls a "spoken English interface."

Keep in mind much of this is increasingly happening beneath the surface in places we seldom see. The fact is we now have computers that sound more human than humans and on a positive note speak more clearly. It is not difficult imagining such figures saving media networks money by delivering the news. All this takes us to a time in the future when computers have the ability to generate images that deliver dialog and can act with emotion. By mimicking figures of the past or their best qualities and traits it would be possible to create false figures with compelling personalities. Sadly, the future may be a place where knowing what is real and what is a false may become difficult to determine and perceive. This makes this sometimes deceptive and potentially dangerous area of technology ripe for abuse.

Footnote; In life most people never meet or hear their Senator or President speak in person, this means a "gentle concealed" enhancement could go a long way to make them appear more appealing. It is important to consider that if this technology can be used to enhance the stature of a person it could also be used to diminish their standing or even as a tool for character assassination.

Footnote #2; If you did not hit the "Click here to take the test" line under the image of 25 Years Of Photoshop it is a highly recommended exercise.