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2016-06-25 12:47 by Karl Denninger
in Politics , 71 references
 

This weekend I had a "walker" come to my home soliciting votes for Congress.

I'm familiar with this; walking neighborhoods is a time-honored thing, but it's hotter than Hell here today in Florida, and this guy was clearly not all that pleased about standing outside with me while I chatted him up.

He of course was pushing the local "conservative", Mr. Gaetz.  I told the solicitor that while I was very much aligned with Gaetz's agenda as I understood it (and was on the literature he was peddling) I was simply not interested in backing anyone for Congress who wouldn't deal with the single issue that IMHO is the most important: Medical monopolies.

Of course any sort of mention of that was flatly-absent, and while Gaetz claims to be "for" a balanced federal budget I also pointed out that so is allegedly Ryan, and yet we've had nothing but growth in both the cost of government and its debt during the time he has been speaker.

He didn't like me very much by the time we got done, but he also didn't secure my vote -- and he shouldn't secure yours either, no matter who it is, until and unless this is front and center in the political debate.

Why?

Because if we don't take care of this now, in this election cycle, our way of life in this nation will end within the next four to five years.

That's not politics or speculation, it's arithmetic.

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Elon Musk has absolutely nothing to sell except hype -- and in that regard, he sells a lot.

Yes, Space-X is a big deal.  But Space-X is a non-event in terms of money.

And now, Musk has "acquired" Solar City -- another money losing tax farm.

Folks, these companies are nothing other than tax subsidy farms, and lose money on an operating basis.  They are debt-financed and leveraged to beyond the orbit of Jupiter, which is a grossly-unsustainable practice that only works so long as the stock price remains sky-high.

Which, ultimately, it won't.

At which point the overhang of said debt will sink the company, rendering it worthless and all those expensive Tesla cars unsupportable and also worthless.

Count on it.

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I'm loving this morning's parade of idiots on the bubble-box.

Folks, this comes down to mathematics and denial of same, which is now blowing up to a small degree in people's faces.

It's simply this, to boil it down to one sentence:

Any compound growth rate in anything that does not have a terminal date (that is, a date at which said growth ceases) is by mathematical definition and trivial mathematical proof a fraud.

Fraud is a crime, not a mistake.

We have central banks, politicians, media outlets, investment firms, individual investment advisers, pension administrators and more who have all run various versions of this fraud on the public over a period spanning decades.  They know it's a fraud too, because their actions all confirm such in that virtually everything they have done over the last 30 years has had one impact and goal above all others: extending the time during which said fraud can continue to appear to be possible.

Let's take just one example -- one which apparently drove the Brexit referendum results.

Immigration.

Nobody argues over people wanting to immigrate who bring with them relatively high levels of intelligence and either relative youth and a willingness to both learn and earn or a pre-built skillset, along with a reasonable cultural fit for the environment that exists in a nation.  Several friends of mine, including a few I've known since High School, are from places such as Iran -- yet they are productive and peaceful members of society (along with being my friends) because they fit the parameters of a successful immigrant as outlined above.

The current immigration craze both here in the US and over in Europe does not fit this mold, whether they are in the Mexican invader or "rapefugee" group.  Instead, said persons are imported for the specific reason of increasing the leverage of employers -- that is, to reduce their costs and thus stoke their profits.

The problem is that the expenses of doing so fall on someone else -- those who are citizens, to be specific.  Many of these people not only have no cultural nexus with the nations they're entering they would consider jail to be an improvement over their former standard of living!  They thus do not care about the civil conduct of the people in their "new" land nor the criminal code, since imprisoning them under "Western" style conditions is not punishment on a comparative basis.

As a result they feel entirely free to******and harass women, threaten people, shoot up gay bars and generally ignore the common standards of decency in the nations they "migrate" to.

Nor does it stop there; in fact, the immigration craze is just one of the terminal decisions when those in political and economic power find (much to their panic!) that they're running out of levers to pull.  Those people know damn well that bringing in a bunch of radical Muslims that have zero cultural nexus to the lands they're coming into and near-zero skillsets that are applicable to a service-based economy beyond waiting tables or pulling coffees (neither of which they'll do willingly) is unlikely to be successful.  Desperate people do desperate things, however, and they've reached that point since economic machinations, specifically in the cost of credit, have run their course.

Look at the pension managers over the last 30+ years.  They have and continue to this day to believe in 8%+ gains on a compounded, permanent basis.  This is impossible; you cannot have growth in an asset base that exceeds that of GDP, and GDP cannot permanently expand at a rate beyond that of advancement in technology and population.  This ultimately must resolve to technology improvement only since once again land mass is fixed and so are resources; therefore, "importing people" (or making more of them by screwing like rabbits) has a terminal point that cannot be avoided.

Or, if you prefer, look at health care expense at the federal level.  Last (fiscal) year those expenses grew by about 9%.  Over the last 20 years it's been running just over 7% annually, which leads to two doublings in that time frame (Rule of 72.)  This cannot continue against a growth rate in the population of about 1% a year, which has been more-or-less constant for the last century in the United States, nor can it against the "new normal" of about 2-3% GDP expansion -- half or so of which is technology based.

In point of fact back in the 1990s I pointed out to my employees that this issue would sink the United States from both a business and political perspective in about 20-30 years unless it was stopped.  The only means to stop it is to break the medical monopolies.  Yet in the 20 years hence nothing has been done or even discussed among the major political parties, or for that matter, the fringe ones such as the Libertarians!  They won't even take it up as a plank in the platform despite this being a clear case of mathematics and the end result of refusal being both clear and inescapable.

There are those (like Mr. Magoo, who was on the TV this morning) who claim this is about people getting older.  Wrong; that's a damned lie and the public data proves it.  Last year (well into Obamacare's "expansion" and thus not chargeable to it) state Medicaid block grants increased by 16%!  The total federal health spending increase last year was 9.3%.

Medicare is for old people; Medicaid is for poor people.  If you are poor and become old (over 65) you wind up on Medicare, not Medicaid.  Yet the rate of increase in spending for poor people (greatly) exceeded that of spending on old people last year.

Still care to argue against arithmetic?

The fact of the matter is that asset price increases over the last 30 years are mostly a function of the cost of leverage -- that is, credit.  As it has fallen asset prices have gone up.  Fine and well except for one problem -- credit is not the use of yesterday's surplus to buy things, it is a bet "on the come" that you will be able to produce tomorrow at a rate exceeding that of today because you must cover it's cost.

What do you think LinkedIn being bought by Microsoft is really about?  People will get fired -- high-paying people -- from this acquisition.  This is destructive to jobs and thus the broader economy but for Microsoft, which has a AAA credit rating and thus can borrow for a few basis points over the cost of Treasuries the incremental EBIDTA they must generate to cover the bond sales is tiny.   This doesn't benefit anyone except the investment bankers (who get their fees both from the deal and the bond issuance) and highest executives at both Microsoft and LinkedIn; the acquisition in fact reduces diversity in the economy, it reduces competition and it destroys jobs.

It is also uneconomic; if you had to pay 300 basis points over natural GDP and productivity expansion (a normal rate of interest) to borrow for 10 or 20 years to finance the deal you'd never do it because LinkedIn, at its net profit margin could never cover the interest expense on the bonds!

Likewise, why would your house ever go up in value -- unless you expand or update it?  Does it magically grow more bedrooms?  Does it magically have more crappers or showers to use?  Does it violate the law of entropy, and thus improve itself without your input, rather than requiring a consent level of energy input to maintain it at its current state?

Of course not.

But if the cost of capital goes down from 5% to 3% then the "price" of a $200,000 house, assuming you borrowed the money for 30 years and are basing the price on the payment you can afford, rises to $254,233.98!

Wait a second.... the value of the house in terms of utility didn't change.  Neither did anything else.  The increase in price was solely driven by one thing -- the cost of borrowing the capital.

This depression of said cost is artificial, however, because on a risk-adjusted basis it cannot be otherwise.  That in turn means someone other than the borrower is forced to take on that risk and pay for it.  That "someone" is you, the taxpayer, and the person doing the forcing is the bank, the central bank and the politicians.  In this case that is expressed in a ballooning government debt that is immediately dilutive to the purchasing power of your money.  In other words you didn't gain by such a machination even though you were told you did.  You in fact lost, because nobody works for free and that includes the bankers that sold you the paper and then packaged it up and put it into the market while causing an increase in the circulating "money" to occur in order to make the sale of said paper possible.

Behind all of this chicanery is the entirety of the media, investment people, commercial banks, investment houses and politicians who are all committing fraud upon the public generally and you personally because they are all claiming that these "trends" can and will continue indefinitely and that you are getting "richer."

This is trivially proved to be a false claim by the simple laws of mathematics and thus fits exactly the legal definition of a Ponzi scheme, for which there are actual and real criminal penalties.

So where the damned handcuffs?  They're missing in action because the people with them are the same people running the crap, along with those who fund them.

Brexit is nothing more or less than the first hint of recognition that the politicians, media, investment houses, pension managers and advisers have built a bridge too far with too few supports -- the end fell off into the sea.

With luck Brexit is the start of recognition and repudiation, hopefully to be followed up with handcuffs and prison sentences, for those who have for decades run outrageously fraudulent claims of "prosperity" and "growth" upon the public, enticing them to entrust their futures, along with those of their children, to a mathematical impossibility.

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I've written before about the losing battle you have with trying to keep your smartphone (or any phone!) over the longer term.  As manufacturers have moved toward non-removable batteries this appeared to be a game forced by them to get you to buy a new device every couple of years.

But..... of late it has gotten worse.

Much worse.

Let's take T-Mobile as an example.

T-Mobile has had a number of areas of the country with "sketchy" (and that's being kind) reception.  Specifically, Northern Michigan had zero native coverage from roughly Flint northward.  They had roaming agreements with some providers for a while (Centennial Wireless being one) but then Centennial got bought by AT&T (surprise!) and their service for roaming customers went to crap or disappeared entirely.

Somewhat recently T-Mobile turned up a bunch of Band 12 LTE towers and basically blanketed the lower peninsula (at least.)  This would nominally be good, as Band 12 is low-frequency and thus travels longer distances than the PCS frequencies that T-Mobile has historically used.  That's good for both building penetration and rural areas, and is a (big) net win.

Or so it seems.

However, at the same time it appears that T-Mobile turned off a material number of their former PCS frequency towers entirely.  Specifically, with the exception of some of the "cities" (really larger towns) there is now no high-frequency service available in many of these areas -- where there formerly was!

The problem is that if you have an older handset (anything designed more than roughly a year and a half to 2 years ago) your phone doesn't have Band 12 in it because it wasn't available when your phone was designed and built.

If you live in or travel to such an area your coverage has not improved, it has instead been effectively destroyed unless you buy a new device!

This is going to continue folks and it's going to continue to bite you, especially if you travel a lot.

AT&T has said they intend to shut down most of their former low-frequency EDGE/GSM/GPRS service and re-use that band space for LTE.  This is good if you have a handset that has LTE in it and can work on that frequency.  It's disastrous if you don't. For AT&T customers this is most-likely going to impact "dumb phone" customers -- those customers who haven't and don't want to move to a "smart" device -- because there has never been a reason for said devices to include high-speed data network capability (or absorb its cost) due to the fact that they can't use it anyway!

This mess is a result of the scatter-shot means by which our so-called "band plan" has developed for mobile service in the US, and is going to get worse.  There are additional low-frequency mobile reallocations that are going to come into play in the next few years, with one of the more-notable ones being in space that used to be allocated to analog TV.  There are no -- I repeat no -- current mobile handsets that will be able to access that band, which means whatever you're using now if your carrier bids on this space and deploys on it you will be forced to buy a new handset if you want the improved coverage, and your carrier may force the issue by withdrawing previously-offered coverage on bands your current device knows how to access.

Beware, if you're not a "trend follower" or think the practice of trying to force you to buy a $500+ device every year or two is outrageous.  Yes, it is outrageous, but no, at least in the US, there is no reasonable way at present to avoid this sort of screwing -- even if you don't want or need the "expanded" coverage, but are content with what you have now.

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2016-06-23 23:31 by Karl Denninger
in Editorial , 468 references
 

My God, it's full of....

It's about damn time someone took their nation back.

Today, it begins.  May it not end here but rather be the beginning of the end of the "multiculturalists", "border-free freaks" and, most-importantly, the cabal of central bankers who think they run it all.

Take that, Brussels and Draghi.

Take heed, Yellen.

We are locked up in the futures as I write this, limit down.  Listen to the talking heads, did you, buy into the rally, did you?  Well, you're officially screwed blind -- you can't hedge, you can't do anything except wait for tomorrow morning and pray the /ES doesn't gap down another 100 handles on the open -- which it very well might.  On margin, are you?  You're dead and buried -- congratulations.  This time I will not weep for you.

Unlike in 2000, or even in 2008, instead this evening I cheer.

You deserve it.

It's time for a nice adult beverage... and a toast.

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