“The stock market is now 35% passive and 65% terrified,” says financial adviser and blogger Josh Brown, a.k.a. “The Reformed Broker.” In other words, more investors nowadays are indexing their money and active managers fear for their futures. Which begs the question, did Brown get it backwards? Should the 35% of stock investments that’s indexed actually be the terrified money? Yes, James Montier and Matt Kadnar of Boston-based asset manager Grantham, Mayo, van Oterloo (GMO) assert in a new paper called “The S&P 500: Just Say No.” The S&P 500 is so expensive, they say, any money tracking the benchmark U.S. stock market index at this point is more speculation than investment. Here’s how the authors put it: “A decision to allocate to a passive S&P 500 index is to say that you are ignoring what we believe is the most important determinant of long-term returns: valuation. At this point, you are no longer entitled to refer to yourself as an investor. You may call yourself a speculator, but not an investor.
Even before Ray Dalio doubled down on his warning that the US has become as dangerously fragmented as during the pre-World War II days of 1937, prompting him to “tactically reduce” risk, some of the biggest names on Wall Street were selling. Two weeks ago, T.Rowe Price made waves when it said that it had cut the stock portion of its asset allocation portfolios to the lowest level since 2000. The Baltimore-based money manager said it also reduced its holdings of high-yield bonds and emerging market bonds for the same reason. Roughly at the same time, in its mid-year review, Pimco said that “with the macroeconomic backdrop evolving in the face of potentially negative pivot points and considering asset prices generally are fully valued, we are modestly risk-off in our overall positioning” adding that “we recognize events could still surprise to the upside, but starting valuations leave little room for error.” This followed a similar preannouncement by DoubleLine’s Jeff Gundlach who not only said that he is reducing his positions in junk bonds, EM debt and other lower-quality investments, but predicted – correctly – the volatility spike in the first week of August.
Norway’s $970 billion wealth fund has been ordered to raise its stock holdings to 70 percent from 60 percent in an effort to boost returns and safeguard the country’s oil riches for future generations. Any short-term view on growing risks will play little part, according to Trond Grande, the fund’s deputy chief executive.
The last time the Republicans had absolute control of the government was during the presidency of George W. Bush when they had a majority in the House and Senate for over four years. And what did they do when they were in charge? They almost doubled the federal budget and the national debt, created the monstrous Department of Homeland Security, greatly expanded the Department of Education, passed the Patriot Act, let the government begin spying on Americans, started two senseless wars, and instituted the Republican version of Obamacare (the Medicare Prescription Drug, Improvement, and Modernization Act). Democrats could not have done any worse.
China’s State Council has issued guidelines on what Chinese companies can and cannot acquire overseas. The purpose is to “promote healthy growth of overseas investment and prevent risks.” These risks would be that the $18 trillion of Chinese corporate debt will balloon further, though much of this debt is already going bad, and that it will blow up, triggering a spectacular financial crisis. This is to be avoided. So Chinese companies have been given priorities, and their efforts to invest in overseas commercial real estate – such as office towers and apartment buildings – in hotels, and in Hollywood will be axed.
What is instructive about both episodes is not what the ECB was doing, but rather what its policy direction was in contrast to others, especially the Federal Reserve. By July 2008, the Fed was fully engaged with all sorts of liquidity issues and new programs designed (badly) to meet them. Likewise, in 2011, the US central bank was still conducting its second round of QE when the ECB voted that first corridor rise. And yet, despite completely opposite monetary policies, the condition of the monetary system in both as well as the economic responses to them was the same each time – some degree of permanent downturn. Monetary policy in either place didn’t matter, as the unifying factor was global money that neither official regime officially acknowledged (or acknowledges now). We are full circle again not because monetary policies work but because they don’t.
Iraqi Kurdish military intelligence reports have estimated that the nine-month-long U.S.-Iraqi siege and bombardment of Mosul to oust Islamic State forces killed 40,000 civilians. This is the most realistic estimate so far of the civilian death toll in Mosul. But even this is likely to be an underestimate of the true number of civilians killed. No serious, objective study has been conducted to count the dead in Mosul, and studies in other war zones have invariably found numbers of dead that exceeded previous estimates by as much as 20 to one……The bombardment of Mosul included tens of thousands of bombs and missiles dropped by U.S. and “coalition” warplanes, thousands of 220-pound HiMARS rockets fired by US Marines from their “Rocket City” base at Quayara, and tens or hundreds of thousands of 155-mm and 122-mm howitzer shells fired by US, French and Iraqi artillery. This nine-month bombardment left much of Mosul in ruins (as seen here), so the scale of slaughter among the civilian population should not be a surprise to anybody.
Consequently, the rest of the world went to work to sell whatever it could, to the US, and receive dollars in payment. National prosperity for the rest of the world required a flourishing export market in the US. Those who had nothing to sell to the US were out of luck. Those selling lots of stuff to the US, enjoyed prosperity. What was the key to selling to the US, for the all-important dollars received in return? The key, for all countries, was to undersell the local US producers of whatever the rest of the world had for sale. There was no other way to obtain dollars. It is fitting to remember, how pleased Americans were, back in the 70’s, to see their smoky, polluting industries close down, to be replaced with green malls and pleasant cafés, with areas for exercising, sunning and shopping. The time was hailed as the “The greening of America”. What happened to America was a Greek tragedy writ large. By its own hand, the US has destroyed itself. Its huge advantage – the right to issue the world’s fundamental money, the dollar – turned into the sword which disemboweled its own guts.
The New York Times’ unrelenting anti-Russia bias would be almost comical if the possible outcome were not a nuclear conflagration and maybe the end of life on planet Earth…….But that gets us back to the problem with the Jan. 6 “Intelligence Community Assessment,” which — contrary to repeated Times’ claims — was not the “consensus” view of all 17 U.S. intelligence agencies, but rather the work of a small group of “hand-picked” analysts from three agencies: the Central Intelligence Agency, Federal Bureau of Investigation and National Security Agency. And, they operated under the watchful eye of President Obama’s political appointees, CIA Director John Brennan and Director of National Intelligence James Clapper, who was the one who called them “hand-picked.”
Since 2009, the Chinese real estate economy has already suffered from three small economic cycles. As it is becoming more difficult for real estate companies to live on artificial prosperity, the duration of every business cycle has become shorter than the previous one. We also see more and more ghost cities because of the economic boom in every sub-economic cycle. There were at least 12 ghost cities founded in 2013, and the number of them jumped to at least 50 in 2017! Bankruptcy is happening more frequently among Chinese real estate enterprises. Since 2016, at least three real estate companies — with a combined debt of at least RMB 763 million — have gone bankrupt. The story of bankruptcy is continuing, with one of the biggest real-estate-driven enterprises, Wanda Group, facing financing problems. If Wanda no longer has access to cheap debt, it might not be able to refinance or roll over all its debt again. If Wanda has to face bankruptcy, it could possibly accelerate an end of the current Chinese boom.