June 7: Daily Contrarian Reads

America’s $13 Trillion Debt Hangover

After bingeing on credit for a half decade, U.S. consumers may finally be feeling the hangover.  Americans faced with lackluster income growth have been financing more of their spending with debt instead. There are early signs that loan burdens are growing unsustainably large for borrowers with lower incomes. Household borrowings have surged to a record $12.73 trillion, and the percentage of debt that is overdue has risen for two consecutive quarters. And with economic optimism having lifted borrowing rates since the election and the Federal Reserve expected to hike further, it’s getting more expensive for borrowers to refinance.

The Donald’s Air Traffic Control Privatization Is Essentially A Scam

A real privatization wouldn’t have any government plan or government-created non-profit organization. We have no idea what a private sector air traffic control system would look like. Private sector innovation always tends to surprise and provide creativity in ways that no individual person, or team, could imagine. This is not going to happen under Trump’s plan. Under real privatization, the President would simply announce to the airlines and the world: One-year from now the government is getting out of the air-traffic control business, good luck with coming up with your own system(s). I look forward to seeing how creative and innovtive you will get. Trump did nothing like this. He is keeping the old shell bureaucratic system The tell is that the entire old bureaucratic system supports Trump’s “privatization.”

In Gold We Trust—The 2017 Report

This year’s Incrementum In Gold We Trust report by our good friends Ronald Stoeferle and Mark Valek appears about one month earlier than usual (we already mentioned in our most recent gold update that it would become available soon). As always, the report is extremely comprehensive, discussing everything from fundamentals pertaining to gold, to technical analysis to statistical studies on the behavior of gold under different economic scenarios.

ISIS Is On Its Last Legs—–So Is The Risk Of Terrorist Attack

Today, it seems these attacks are the final death throes of the Islamic State. Using “lone wolves,” meaning single attackers inspired by social media, is the only way ISIS can strike at Western countries. The reason for that is that the terrorist group is dying. Currently, ISIS has lost all but one stronghold in Iraq and that final holdout, the city of Mosul, is under attack by Iraqi security forces. ISIS is also losing ground in Syria, where its capital city of Raqqa is under threat from U.S.-backed Syrian rebels.

Great Debt Unwind: Bankruptcies by Consumers and Businesses Jump

Consumer and business bankruptcies are rising again, after declining for years since the Financial Crisis. That’s not a propitious sign. For bankruptcy filings by businesses from large corporations to tiny sole proprietorships, the dance started in November 2015. At first it was the energy bust. But bankruptcies of energy companies have tapered off with new money surging into the oil & gas sector once again. Now bankruptcies in the retail sector are steadily worsening, and other sectors too have picked up the slack. So here we go again. Total US business bankruptcies in May rose 4.7% year-over-year to 3,572 filings, according to the American Bankruptcy Institute. That’s up 40% from May 2015 and up 10% from May 2014.

How China’s Biggest Bank Became Wall Street’s Go-To Shadow Lender

High up in a New York City skyscraper, China’s biggest bank is playing in the shadows of American finance. The prize for Industrial & Commercial Bank of China Ltd. isn’t stocks, bonds or currencies. It’s the grease in the wheels of all those markets: repurchase agreements. By exploiting a loophole in rules intended to keep U.S. banks from getting “too big to fail,” the state-owned ICBC has become a go-to dealer in repos in just a few short years, alongside longtime powerhouses like Goldman Sachs Group Inc. The short-term loans allow investors to borrow money by lending securities, serving a vital role in day-to-day trading on Wall Street.

Earnings Ex-Items Versus Economic Profits And The “Bull” Market

have highlighted peaks in the profits-to-GDP ratio with the orange vertical bars. As you can see, peaks, and subsequent reversions, in the ratio have been a leading indicator of more severe corrections in the stock market over time. This should not be surprising as asset prices should eventually reflect the underlying reality of corporate profitability. Of course, it is often suggested that, as mentioned above, low interest rates, accounting rule changes, and debt-funded buybacks have changed the game. While such could possibly be true, it is worth noting that each of those supports are artificial and finite in nature. Currently, the aging U.S. economy, where productivity has exploded, wage growth has remained weak and whose households are weighed down by surging debt, remains mired in a slow-growth funk. This slow-growth trajectory has, in turn, put a powerful shareholder base to work increasing pressure on corporate managers not to invest, and to recycle capital into dividends and buybacks instead which has led to a record level of corporate debt. 

Will the Neocons’ Long Afghan War Ever End?

The neoconservative vision of a “Long War” or “generational conflict” to reshape the Middle East and other parts of the world has, in effect, created its own reality, as its proponents in the Bush II administration promised. The new crony-capitalist order they envisioned has taken root in places where entrenched ruling classes were already predisposed to it, like the Persian Gulf monarchies.

The Alleged French Election Hack Was Phony Baloney

That NYT report was complete nonsense. The “cybersecurity firm” it quoted was peddling snake oil. Phishing attacks are daily occurrences, mostly by amateurs. Phishing emails are not cyber attacks. They are simply letters which attempt to get people to reveal their passwords or other secrets. They are generally not attributable at all. Likewise APT’s, “Advanced Persistent Threats”, are not “groups” but collections of methods that can be copied and re-used by anyone. After their first occurrence “in the wild” they are no longer attributable.

The False Promise of Infrastructure “Spending”

Building bridges to nowhere isn’t just a waste of money in the present; it saddles the economy with productivity-draining costs for decades to come…….. But is this really true? Does rebuilding and/or adding infrastructure create economic value? To answer, we need to look at two issues: productivity and cost-benefit.