Stocks also priced in a second stimulus today I mentioned last month that the stock market had already priced in an economic recovery that hasn't happened yet. There's been a little bit of a correction since then, but today it looks like there's an urge to go back to the mania of overvaluation. Based on the rumor that some non-elected members of the administration would like more stimulus, the NASDAQ soared just shy of 2%: What are the actual odds of a second stimulus getting passed, right now? Probably pretty close to zero. Following the death of Ruth Bader Ginsburg and McConnell's expressed desire to ignore the precedent he tried to set four years ago, animosity in Washington is at peaks we haven't seen in generations. Schumer has invoked certain Senate procedural tactics designed to slow down business and prevent as many appointments as possible before the new Senate (and possibly president) is sworn in. One event just postponed was a Senate Homeland Security and Governmental Affairs subcommittee hearing on state and local cybersecurity. A spokesperson for @SenatorHassan, the top subcommittee Dem, told reporters in an email that she is "extremely frustrated" about the delay. https://t.co/7MJLgtxHzS — Maggie Miller (@magmill95) September 22, 2020 Everything remains unstable While job losses have slowed somewhat and new hiring has started picking up again, we're still facing huge output reductions from this time last year. Many have exhausted both traditional state unemployment as well as the additional federal assistance that was provided both as universal stimulus and as a supplement to those state insurance programs. And although Trump announced more help was on the way, those promises were predictably hollow. Without funding to back up the declaration, very few states were able to find any additional resources to increase unemployment checks. The few that did - mostly red states - raided cash from the state's FEMA emergency balance. As such, the money did not last long, and now represents additional funding the government will have to come up with to handle the next environment disaster. Oh did I mention environmental disasters? Because there are also hurricanes and fires and a pandemic that will probably have to be dealt with at some point. But about those stocks... I suppose things brings me back around to the original topic here: stocks. Yeah, I wouldn't suggest investing in these current prices. Even if we ignore the obvious economic and ecological problems, getting in at this price level is a bet on the fact that Chuck Schumer and Mitch McConnell are suddenly going to agree on how to fix the current mess we call a country. Beyond that, prices are still too high and the rally has gone well past the actual economic recovery. While the most stubborn bulls might insist that profits can be separated from the overall health of the labor markets and widespread prosperity, it would be wise for them to check the history books for examples of that lasting very long.

Too early to celebrate Trump’s unemployment orders While Congress has been deadlocked and unable to reach an agreement regarding an extension of pandemic assistance, President Trump has decided to take unilateral action with a series of executive orders. Early morning futures are mixed, so while some unemployed individuals are celebrating, the markets have been more cautious - and probably for good reason. Let's take a little look at the orders and see what we can expect. Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic The first order extends the duration of student loan payment relief through December 31. This doesn't forgive any debts, but it does allow borrowers to defer payments without penalty or additional interest accrual. The Secretary of Education is also instructed to facilitate deferments and waivers, while also redefining economic hardship in such a way that recognizes the current economic situation. So far, there's no major problems here. Trump's student loan order doesn't change the amount owed so much as it merely restructures those debts and provides a more flexible payment arrangement. It doesn't require any funds to be disbursed, and it's basically in line with the president's constitutional authority to determine executive priorities. Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters and Homeowners In the next order, Trump promises to help renters and homeowners... but this is where things start to get questionable. Section 2 declares the intent of minimizing evictions and foreclosures, but Section 3 provides a very murky enforcement mechanism. The Secretary of the Treasury and the Secretary of Housing and Urban Development shall identify any and all available Federal funds to provide temporary financial assistance to renters and homeowners who, as a result of the financial hardships caused by COVID-19, are struggling to meet their monthly rental or mortgage obligations. The obvious problem here is that Congress has not appropriated money for this action, so Trump is asking his executive staff to "find it." What the president doesn't seem to understand is that the government was not designed to run like a business. The CEO can't just decide to take money out of one account and transfer it to another, because those funds are allocated by Congress for a specific purpose. Put simply: the president can't unilaterally spend public dollars. While the language of this order is encouraging to those who are at risk of foreclosure or eviction, the reality of it won't do much to help them. Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster In the third order, things start to get really weird. The order specifies that employers can defer all payments on Social Security taxes through the end of the year. There are a few exceptions, and the order doesn't cover payroll taxes due on individuals earning more than $2,000 per week. Like the student loan executive order, this doesn't eliminate the amount that's due and it doesn't require Trump's executive staff to redirect funds that were allocated elsewhere. In that sense, it is theoretically enforceable. But is it a good idea? Maybe not. A payroll tax holiday might increase the consumption rate of those who are currently employed, but the economic crisis right now relates primarily to a historic lack of employment opportunities. The bill also leaves companies with a large liability at the end of the year, so it increases short term liquidity at increased risk of long term default. The order also instructs the Treasury to "pursue" a total forgiveness of this tax over the specified time frame, but that would require the very legislation Trump is trying to avoid by fiat. Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019 And here's what the headlines are celebrating: Trump extends the unemployment benefit subsidy! Except, well, much like his other orders there is no funding to back this up. Since Congress couldn't achieve a deal and since there is no budget for this extension, Trump has ordered FEMA to find the cash. He's also promising to raid the remaining $80 billion in the Coronavirus Relief Fund (CRF) that was supposed to be paid directly to the tribes, states, and local governments most impacted by the pandemic. Again: the idea here is fine. People on unemployment need better job options and a stronger safety net while they look for work. The political reality is that this is exactly the type of government action that requires Congressional approval and funding. $80 billion plus FEMA's balance sheet won't add up to the $1 trillion that we've already spent on pandemic-related unemployment assistance, and it will leave our emergency responders underfunded right in the middle of hurricane season. Unemployment must still be reckoned with While it's great that the executive has allowed individuals and businesses to defer as many payments and debts as possible, these actions won't be sufficient to curb the massive economic crisis that is brewing in the shadow of the pandemic. It's also way too soon for the unemployed to start celebrating. While the order to extend payments might signal an increased willingness to compromise, it will not provide substantial assistance on its own. Congress must act to provide the requisite funding, and the longer they wait, the worse the economic effect will be - both at the individual and at the macro level.

Markets are pricing in a recovery that hasn’t happened Today's unemployment report was hailed as a victory, but the only way it looks good is in comparison to the few months preceding it. According to the Bureau of Labor Statistics, 1.184 million Americans lost jobs this last week. august-unemployment-data

Now, this number is down from the peak of 6 million jobs lost in late March and early May, but it's still one of the worst weeks for unemployment in American economic history. Prior to the coronavirus crash, the largest disruptions in the U.S. economy typically cost 2 or 2.5 million jobs lost - per month! The 2009 crash, referred to often as the "Great Recession," peaked with 2.6 million jobs lost in a one-month stretch. We're currently closer to 6 million in the last month, and this month has dramatically improved from the one before it. Markets react positively Despite the 16 million currently unemployed Americans and despite the massive revenue and profit losses reported over the last two weeks, the stock market is doing just fine. In fact, the S&P500 is approaching a record high while the Nasdaq just hit its 31st record high close this year. To an extent, this makes some sense. Tech stocks have generally done better than shares in companies that require physical interaction. But the price earnings ratio is back in to extreme bubble territory. While the average P/E of the last few decades is around 15 or 16, the current NASDAQ number is closer to 40. That's right: if you bought $X worth of NASDAQ shares right now, it would take about 40 years for those companies to earn back the money you've invested. Of course, if they continue to grow, it will be a bit quicker than that, but what space are they expected to grow in to? Federal benefits expiring This week is also the end of the additional $600 unemployment supplement provided by the federal government. Up until now, those 16 million unemployed Americans had an additional benefit padding the loss of their job - and the lack of alternative employment opportunities. The additional funding has been a major boost to state unemployment programs that provide very little. Florida's unemployment payments, for example, are capped at $275 per week - regardless of how much the employee was originally making. With average weekly wages in the state around $600 to $800 per week, that benefit is just a small drop in the bucket compared to the bills and obligations those people have. The music keeps playing Imagine a game of musical chairs where 16 million seats were suddenly removed. But the song hasn't stopped yet, so no one is crying. Now imagine everyone has concluded that because the song hasn't stopped yet, it will probably never end. Never mind that Congress just put their hand on the plug, and they're about to pull it.

The Irreverent Guide to U.S. Monetary History What is this "the market" you speak of, if not a series of government grants and privileges? Without the Treasury honoring the Federal Reserve's obligations, there is no "the market." You want competing currencies? Get a time machine and go west. We tried it. It sucked. Every other day another bank went bust, and took a whole bunch of worthless currency and overhyped bullion promises with it. Turns out private sector currency manipulation makes Keynesian governments look like boyscouts. So we tried to print all our own public currency at the Federal level, and that didn't work so well either. Well.. a big part of the problem was that we ended up in the middle of a crazy civil war, so maybe we should also remember that two governments operating with purely public and purely fiat currencies were able to raise the largest industrial-era armies the world had ever seen. Just imagine if they had skipped the war and gone straight to building railroads? But alas, the public currency died at the demands of the British financiers who made loans to our shattered republic in the aftermath of destruction. They insisted we abandon our current corporate regulations to adopt their concepts of limited liability and government sponsored cartels that evolved directly from the hereditary privileges of those aristocrats chartered to do the crown's royal business. Upon securing favorable loan and regulatory terms with the U.S. Congress, they funneled huge sums of cash to Rockefeller, Morgan, and other would-be "barons" who could successfully corner and monopolize essential industries. The restoration of the financial nobility's control over America was set to be codified in 1913, but there was just one fatal flaw in the Federal Reserve System: It was too effective. By 1929, consolidation of the nation's wealth and inequality had reached such a peak that it made 1850's slave plantations look like a bunch of egalitarian hippy communes. But a strong economy can't exist unless a lot of people have discretionary income: When you consolidate all of the country's capital, no one has anything left to spend. Sure, you can build an incredible palace here or there, but the rest of the economy collapses and you end up with pissed off peasants at Blair Mountain or something. So we came up with one more solution in the 1940s. It was incredible. It put every other innovation to shame. We kept the effectiveness and price stability of the Federal Reserve System, but we stripped it of the rich-right wing WASP conspiracy to "get as fucking rich as possible and fuck everyone else" by recovering a large part of the profits of those who were most able to manipulate it for their own benefit. We took that money and we built transportation networks and schools that were the envy of the world! And you know what happened next? Those kids growing up in those schools grew up to know a lot of stuff about how to build stuff and make even more money! The economy boomed! We went to the goddamn *moon*! Since then? Well, a lot of the banks attached to those old names, Chase-Rockefeller, JP Morgan, Goldman Sachs... well, they own everything again. The economy's shit. The peasants are getting pissed off, and they'll probably only continue blaming the Muslims for so long...

Fixing the Economy Fast Best case: Everyone defaults. Then, when the banks fail (again) we DON'T bail them out. Reform Federal Reserve so that money creation is done through public, member owned, and not-for-profit banks: eliminate private banking representation on the board. If we're going to subsidize banking as if it were a public good, we should operate it as a public utility. Institute simple yet gradually progressive tax system to pay for remaining public obligations. Eliminate deductions/exemptions/incentives/payroll taxes. There ya go. All debt-related problem are solved! Worst Case: Get ready for 30 years of austerity and a violent awakening that gives way to the unraveling of empire and an even more violent crisis that shakes the very foundations of our government & corporate economy. What do you want the next 70 years to look like?

A Tale of Two Markets Increasingly, it is "the market" that shapes our social destiny and financial choices, but what is a market and more specifically, what is our market? An ever present concept The freest market is the one that exists conceptually in relation to every voluntary human transaction or exchange. When the neighbor kid offers to mow your yard for $30 or $40 and you agree - you've created a market for exchanging cash and services. By publishing this website, I've provided an info-tainment product offered at no fee to you. In the broader online market, the price for content is typically set around "free." So whether the exchange is one on one or part of a larger clearing house like the internet is for information, all voluntary trades can be classified as market activities. In theory, the aggregate of these voluntary choices is "The Free Market," but in reality many exchanges and economic choices are not entirely consensual or free to fail. The Market in Practice In more common terms, "The Market" is a series of political and private institutions designed to rapidly make economic choices on an international scale. While Wall Street is the center of activity, it is actually the Treasury and the Federal Reserve that operate as the origin point for this market. As money is created, it flows from the public institutions into private banks that in turn lend the money out for a profit. As the bailouts have demonstrated, these loans will be allowed to fail - although there are plenty of other ways for money to enter society at large, none of them would be quite so profitable for the entrenched interests who already have enough wealth and influence to insure that they get what they want. Typically, the majority of a bank's loans are issued to state and local governments, large corporations, or for residential mortgages. From there, smaller businesses can acquire currency by providing products & services to those entities, and labor can acquire currency by working directly for someone else who is in the loop. In short, this is how money trickles down from the rich and occasionally makes it in to the hands of the working poor. State of the Market The biggest banks not only have the most influence over the Federal Reserve, they also have an infinitely implicit guarantee of profitability. While they are theoretically paid to make large economic choices in a market-like way, the removal of their risk distorts the choices they'll ultimately make. This moral hazard is the status quo and its hard to believe it is an accident or an honest attempt at maximizing efficiency. When the markets go down as they have over the last few weeks, what is actually happening is that those who are voluntarily invested in the system are walking away and looking for something a little less rigged. Inevitably, when the next emergency bailout or "market support" is announced, the "markets" will appear to do better but only in that they are even less functional as markets. This is a crisis of legitimacy, and the cure is part of the cycle that devalues our market's market-like functions. A few patches and bandaids is not "reform," rebuilding from the ashes of a failed system will be the only true reform. Until then, good luck...

Gold is Surging Again Was it the crazy drop in trading last week? Was it all of the talk about defaults in Europe or the actual bail out itself? Whatever it is, it is driving up the price of gold - every survivalists' favorite commodity and the investment that only really makes sense when you're bearish on absolutely everything else. At the moment I'm writing this (noon on May 12), gold is trading at about $1,245 per ounce. The last big purchase I remember hearing about was India's 200 ton acquisition back in November at or around $1,050 an ounce. That was six months ago - and now gold is trading for almost 20% more than it was. No one is saying that India was buying at the top of the bubble any more - in fact they just pulled a huge, quick profit simply because they didn't need to print up a money to stay solvent & investing in the economy. Now every bailout of crisis that strikes a western economy is just going to amplify the value of that investment. The problem is largely inflation beyond wages - but people don't really feel this until they're already on the edge of bankruptcy or foreclosure. So many costs are fixed - car payments, mortgage payments, student loans, etc... - that consumers aren't really feeling the deflationary effects in autos & real estate in any kind of positive way. Meanwhile, milk and gas are back near $3 a gallon, most meat is up 20-25% over the last year or so, and insurance rates, local taxes, & communications fees are on the rise. The only parts of the economy experiencing inflation are the ones that aren't fixed for consumers - the parts experiencing deflation are fixed at the old, higher rate. Wages haven't really gone anywhere, so the result is that people near the edge are going to have to constantly cut back until they simply can't anymore. At that point, default becomes logical as its the only way to really take advantage of the deflation in other sectors that brings the total CPI down. So the markets are speaking up, and this is what I hear: Walk away from your debts, and/or buy up physical gold because the government is just going to keep printing to make those banks whole for the debt losses.

SEC has some crazy theory about Goldman Sachs The SEC has released this crazy theory about a conspiracy at Goldman Sachs to defraud investors. Although technically, if they have enough evidence to win at trial, it won't really be a conspiracy theory any more. Isolated or Systemic Fraud? The big question here is whether we're looking at a one time event or a pattern of behavior. If the SEC only has this one complaint lined up, this might not end up as much of a story at all. The total value of the Abacus transaction is only about $1 billion and Goldman's stake is even smaller. Bloomberg is saying they only made about $15 million in fees for this particular deal, so the charges here are really, really insignificant for a company that made a thousand times that much profit in just last year. On the other hand, if this turns out to be the kind of deals that Goldman routinely uses to collect fees and bring profits to their favorite hedge funds and investment firms... Well, then we could be looking at a price fixing scheme big enough to make huge profits in the event of a crisis situation. Hell - let's just be honest and admit that it would be a big incentive to create a financial crisis. On Timing the Announcement A lot of the analysis surrounding the SEC's complaint relates to the timing of its release. There are definitely a few interesting "coincidences" to be considered when trying to determine what we can really expect out of this: No one got "blindsided" - Goldman had knowledge of the charges months ago and they didn't take the opportunity to come out and announce the pending suit on their own terms. They kept quiet about the SEC accusations and got their PR machine working to promote a general brand image.

- Goldman had knowledge of the charges months ago and they didn't take the opportunity to come out and announce the pending suit on their own terms. They kept quiet about the SEC accusations and got their PR machine working to promote a general brand image. The "other" SEC Report - Oh yeah, by the way, the SEC also published its explanation of why it took 12 years to actually bring any charges against a suspected ponzi scheme that is turning out to be one of the biggest direct investment scams of the bubble era. Its probably a good thing for the SEC's own public image that everyone is busy talking and thinking about how they're "cracking down" on Goldman and not about how they're mostly turning a blind eye to all of the other scams going on. If you want to see the whole report and tell us what it says, its down at the bottom of the page. Thanks!

- Oh yeah, by the way, the SEC also published its explanation of why it took 12 years to actually bring any charges against a suspected ponzi scheme that is turning out to be one of the biggest direct investment scams of the bubble era. Its probably a good thing for the SEC's own public image that everyone is busy talking and thinking about how they're "cracking down" on Goldman and not about how they're mostly turning a blind eye to all of the other scams going on. If you want to see the whole report and tell us what it says, its down at the bottom of the page. Thanks! Options Friday - April options contracts expired Saturday, so anyone who was bearish on Goldman in the options market could have made some serious cash. While most of these common derivatives generally expire without being exercised, a huge sudden price move triggered huge volume in the options market. With 300,000 contracts leveraging up to 30 million shares at a $5 or $20 profit each, way more money was earned on the options market than the actual value of Goldman's participation in the fraud they're alleged to have committed. Based the major sell off and next month's options activity, traders are expecting Goldman to continue falling over the near future. International Investigation(s) And it might not be up to just the SEC to prove a case for systemic fraud. In fact, they might already have help from German authorities who are in the process of bringing their own legal actions against the investment firm. A German bank was among the buyers of the intentionally doomed mortgage securities, so one of the most influential governments in the European Union has a reason to take this scam personally. If there is more dirt to be found on Goldman, I'm sure they'd like to help expose it. Of course we also already knew that Goldman had a hand in the Greece's deceptive debt accounting and the Federal Reserve claims to be taking care of that investigation, but how long will it be before Greece or France or the U.K. sets up their own investigations in the interest of keeping the EU financially stable? I can't give you a date, but EU Monetary Affairs Commissioner Olli Rehn promises it will be "profound and thorough." Of course, the United Kingdom is the home turf of big banking, so you know when London is talking about sanctions there must be something seriously rotten going on. Then again, maybe Gordon Brown is just trying to win some election points with tough talk. The craziest theory With May options investors seeming to expect declines that far exceed the value of the SEC's entire case, it seems like the craziest conspiracy of all might now be coming to light. Not only did Goldman Sachs intentionally misrepresent the securities they sold, but this is starting to be perceived as a standard course of action rather than any kind of isolated incident. With prior executives and directors staffing some of the most influential political positions around the world, they were widely presumed to be immune from this kind of scrutiny and seen as safe a bet as any aggressive growth stock could be. Instead, whether this was intended as a public relations move or a slap on the wrist, it could have serious implications for Goldman's ability to acquire clients in the future - or even operate inside certain legal jurisdictions. As promised, here is the SEC's "other report" from Friday. No one's really talking about it so I haven't bothered to read it. I'm sure though, that its a great reminder of why the SEC can't (or won't) actually take on a powerful company on its own until they're absolutely certain they can win a case. Inspector General's Report on S.E.C.'s Stanford Inquiry

Christmas Jobs Hide Decline Anyone watching the employment reports for the signs of a recovery may have found a bit of happy news this week. It was reported that only 10,000 jobs were lost in November, and this actually sounds like a pretty good number when its compared to the hundreds of thousands of lost jobs that had become the norm. Despite this "recovery," the unemployment rate remains right at 10% (although the fact that any total decline in jobs results in an improved unemployment rate is suspect in itself.) Inside the details of this latest jobs report are some true gems to help us truly understand what is going on with the labor markets in America: In November, employment fell in construction, manufacturing, and information, while temporary help services and health care added jobs. Not only are we employing fewer people to build and make stuff, we're also losing jobs in technology and information services. The latest trend toward outsourcing is high-tech - and online jobs are increasingly headed to Asia. Month over month, the absolute number continues decline, and the depth of our current economic troubles becomes clear: So the only employment "gains" in November are temporary jobs for Christmas - this means ringing cash registers at minimum wage or sitting in a fake beard and asking someone's kids what they want for Christmas. At least the department store Santa won't have to tell the little ones that they probably won't be getting what they want this year... Meanwhile, the health industry also continues to grow - a necessary cost but one that is having a disproportionate drain on America's spending capacity. Where most nations contain health costs to under 10% of GDP, we have almost doubled those averages and we're headed toward a situation where 1 in 5 dollars spent in our economy is for some kind of medicine or medical attention. Of course that's great news for anyone in med school, but its bad news for employers or anyone who is paying for insurance out of their own pockets.