October 3: Daily Contrarian Reads

Meet Kevin Warsh—-What the Next Fed Head Thinks About Central Banking

As reported earlier this morning by the Wall Street Journal, President Trump and Treasury Secretary Mnuchin met with Kevin Warsh yesterday to discuss the potential vacancy at the Fed next February. Warsh already has central banking experience, having sat on the Federal Open Market Committee as a Fed governor from February 2006 until March 2011. Two and a half years after he resigned from the Fed, he emerged as a vocal critic of FOMC policies, including policies he helped craft. He published an op-ed in the WSJ on November 12, 2013, and it was quite the editorial.

Bitcoin, Yen Vol and the Madness of the BOJ

Post GFC, the rate at which these other Central Banks were expanding their balance sheet put extreme stress on the Japanese economy as the BoJ’s relatively tame quantitative easing policy was overwhelmed by the rest of the world. Global deflation was exported to Japan. And just when things couldn’t get worse, Japan was hit by the tsunami / nuclear disaster. Paradoxically, this caused a spike in the USDJPY rate down to 75, with the Yen hitting an all-time high value against the US dollar. This proved the final straw for the Japanese people, and Prime Minister Abe was elected on a platform of breaking the back of deflation through innovative extreme policies. And just like that, Abeconomics was born. Since then the Bank of Japan balance sheet has swelled from 30% of GDP to 95%!

Here’s why Millions of Americans Feel Left Behind by the Economic Recovery

“The U.S. economy has experienced long-term real wage stagnation and a persistent lack of economic progress for many workers,” wrote Jay Shambaugh, a White House economist under President Barack Obama who now heads the Hamilton Project.After adjusting for inflation, wages are just 10% higher in 2017 than they were in 1973, amounting to real annual wage growth of just below 0.2% a year, the report says. That’s basically nothing, as the chart below indicates.

RussiaGate’s Shaky Foundation

With all that history in mind, we should be grateful that William Binney, the National Security Agency’s former technical director, is shouting with everything he can muster that the U.S. intelligence community has no solid evidence that Russians hacked the Democratic National Committee. The NSA, he says, would have a record of any overseas exfiltration and could release that data without danger to national security; yet the NSA hasn’t. Though Binney left the NSA 16 years ago, he should know: he created the powerful cyber-vacuum that the NSA still uses.

Trapped—The Fed’s Non-Transitory Meandering

Monetary officials continue to maintain that inflation will eventually meet their 2% target on a sustained basis. They have no other choice, really, because in a monetary regime of rational expectations for it not to happen would require a radical overhaul of several core theories. Outside of just the two months earlier this year, the PCE Deflator has missed in 62 of the past 64 months. The FOMC is simply running out of time and excuses.

Bitcoin, Money And the What If Analysis

This game continues until people like me have bought all they want… and then something really bad happens. Without continued demand, the price drops. Suddenly this currency-turned-asset becomes a liability. And, suddenly, we have a big “What if?” scenario on our hands, the type that my colleague Lance plans to talk about next week. By then, I, along with everyone else, must decide whether to hold or sell. Many people will sell, causing a panic stampede out of the cryptocurrency, killing its value as an asset.

Distributional Analysis of Trump Tax Plan—-By 2027, 80% of the Benefit Would Accrue to the Top 1 Percent

Fast forward to 2027, when the overall average tax cut would be smaller than in 2018, increasing after-tax incomes 1.7 percent. Taxpayer groups in the bottom 80 percent of the income distribution—those making less than about $150,000—would receive average tax cuts of 0.5 percent or less of after-tax income. However, taxpayers making between about $150,000 and $300,000 would on average pay about $800 more in taxes than under current law. And the one item which Democrats will love: about 80% of the total benefit would accrue to taxpayers in the top 1 percent, whose after-tax income would increase 8.7 percent….

Guess Who Was Actually Hacking State Election Systems—-Obama’s Department Of Homeland Security

Indiana isn’t alone with such recent DHS hacking claims as Idaho Secretary of State Lawerence Denney said he believes DHS may have attempted to hack its state election website around Nov. 8. It wasn’t a Russian IP address mucking around in the state’s affairs, but an IP address belonging to DHS, he said.When Idaho “looked at IP addresses that tried to get into our system,” it didn’t find “a single IP address from a foreign country,” but one from “our own Department of Homeland Security.”

Single Most Over-Valued Market In History

The problem is that this argument is the exact essence of a bubble mentality. Specifically, the mindset boils down to the proposition that stocks have gone up, and though valuations have become rich, stocks have continued to go up, so valuations must not matter all that much. And even if valuations did matter, low interest rates “justify” extreme market valuations while simultaneously offering no alternative to stocks. So market valuations are obscene because stocks have to compete with interest rates, but apparently, interest rates can’t compete with stocks.

The Ken Burns Documentary Glosses Over The Devastating Civilian Toll

Like Burns and Novick, I also spent a decade working on a Vietnam War epic, though carried out on a far more modest budget, a book titled “Kill Anything That Moves.” Like Burns and Novick, I spoke with military men and women, Americans and Vietnamese……I spoke with hundreds of Vietnamese from these rural areas. In hamlet after hamlet, they told me about being rousted from their homes and then being forced to drift back to the ruins, for deeply-held cultural and religious reasons, and often simply to survive. They explained what it was like to live, for years on end, under the threat of bombs and artillery shells and helicopter gunships. They talked about homes burned again and again and again, before they gave up rebuilding and began living a semi-subterranean existence in rough-hewn bomb shelters gouged into the earth.