2016: What Was And a Preview of 2017
The Market Ticker - Commentary on The Capital Markets
2016-12-26 09:18 by Karl Denninger
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2016: What Was And a Preview of 2017
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Historically speaking The Market Ticker used to publish an "annual review" including a set of predictions.  Some years worked out pretty good, others not so much.  But even the "bad" years weren't too bad in retrospect; if you make a dozen predictions and get half right over a year's time that really is quite a bit better than you might first think -- although nowhere near good enough to dub yourself Nostradamus.

As I intended in my ticker entitled In Closing from February of 2014 I've wound things back around here quite a bit.  Not completely, but materially.  The software here was at version 41.4 when I penned that piece; it is currently 45.5.  That's more than four revisions greater, since there have been a bunch of "point" changes since -- mostly bug fixes but a few enhancements too.

The post (thread) count was 228,802 when I penned that piece.  It currently stands at 231,735.  The Bar (for user-generated threads and comments, open to anyone who used to be a donor at any time in the system's history) has been reopened this fall, and for the time being I intend to leave it accessible into 2017.  You can find it from the "top" menu here if you're signed in and once had donor-level access -- or just go directly to our companion domain at tickerforum.org.

There were 7,950 Tickers posted from the inception of the site to February 2014.  Since there have been 2,777 more.  There were 650 posted this year.  However, the volume has dropped quite materially, especially in the back half; the count has been about one a day, on average since July, including a "burst" of them for the election season.

The donation system went away quite some time ago and this year the advertising system was almost-completely shut down as well, leaving it just active enough to remain "alive" from the adsense syndication system's point of view.

Here's the issue I have when it comes to continuing what I've been doing, when you get down to it: Nothing has really changed at all in terms of either outcomes or even interest among readers here.  Not one of the pinned threads more-recent than my In Closing missive has managed to reach materially over 50,000 views.  The only pieces to get any sort of "real attention" were those related to the election and of those none had a thing to do with policy.

But..... we're two more years down the road and, as I pointed out in October about four years from the detonation of our nation's finances.

A detonation, I remind you, that I've been raising hell about since the 1990s; it has been visible for that long on the horizon, and has been a focus here since The Market Ticker began publication.

Ever watch "Gran Torino"?  When you go into the bathroom with a hacking cough and blood comes up you got a big ****ing problem.  This nation has been hacking up blood for decades and we're still, as a population and nearly to an individual, looking for the "investment" that will make more money as our "response" to that.  What are you going to do with it all when overcome by events?  You can't eat your stawks, you know.

So here's the deal as I see it: Trump is not going to save the world -- or America.  He's not even going to save you.  Hell, you just watched Obama, according to the media, Trump, the Republicans and a bunch of others "stab Israel in the back" by refusing to veto a UN resolution stating theft of land is illegal.

Really folks?

Look, I get it -- the UN sucks (I agree with that, by the way) and to the victors go the spoils when it comes to war.  Go ask those displaced in Aleppo and elsewhere through the world how private property rights have worked out for them when it comes to owning a home or business.  Expropriation is part and parcel of what governments do, but why pussy-foot around with it and exactly how does doing so make you anything more than a sniveling pack of fraudsters?

If Israel is going to consider a 50 year past war justification for seizing land then seize the land, all at once, re-draw the border to encompass same and be done with it.  The idea that they can keep dicking around with this and by stealing a little bit here and there, one house or "settlement" at a time it is ok but if they did it all at once it wouldn't be is outrageous, it has been outrageous for 50 ****ing years and it doesn't change in character based on who's doing it or why.  War sucks although it is sometimes necessary but this load of crap is nothing more than finding a way to turn a short war into one that has now spanned generations and shows no sign of ever ending -- why don't we just admit that too many people like this war for any serious effort to sue for peace to be accepted?

More to the point given who's involved, since when is intentionally extending a war for five decades by jacking around instead of being decisive in your actions "noble", "honorable" or appropriate, say much less justified if you're "God's chosen people"?  I seem to remember a bunch of folks got a 40 year sentence of wandering in the desert for jacking around when it came to doing the right thing at a time in the distant past -- or so says a tale some consider to be divinely written. Have you ever bothered reading your professed Holy Book, Bibi?

I'm tired of that crap being a "cornerstone" of US foreign policy and by the way, it appears from his tweets Trump has every intention of making it worse.

Or maybe - just maybe - he'll tell Bibi to either **** or get off the pot.  Take it all, invade and kill all who resist.  At least that would be consistent.  Pile up the bodies and pay the price, politically and otherwise.

Speaking of Trump, many continue to harp on Trump having business interests all over the world and the "horrifying possibility" that some nut job with a suicide vest (or a big truck) might penetrate one of those places somewhere in the world and "damage his brand", leading to unspecified bad things.   How about a bit of critical thought on that point eh?  Let's consider the fact that (1) you can't (at any rational cost) buy insurance against terrorism or acts of war and thus (2) Trump is the first President in a very long time, perhaps the first President ever since people went to war on horseback with the King on the field of battle who has personal pecuniary interest in avoiding armed conflict of all types -- and when it cannot be avoided he has an interest in making any such conflict short with a decisive victory for our side. You see any armed conflict, terrorist or otherwise, might cost him something (like a smoking crater where there once was a hotel!)

Gee, that never crossed your mind, did it?  Why not?  Maybe you can explain exactly how that sort of view toward hostility in all its forms in the Executive, as a first in our nation's history, is a bad thing?

But put all the international stuff aside because it really is a sideshow.  The 900lb Gorilla in the China Shop is the medical scamjob and if we don't start locking people up and dismantle it wholesale, beginning right ****ing now, the rest literally doesn't matter.  Maybe the people of this country will get angry enough to start dropping medical and pharmaceutical executives in the streets with whatever they have, whether it's an SUV, a brick off the top of a building or something more thuggish -- or maybe they'll just wither and die as their feet, hands, legs and arms are chopped off while their vision fades to black from diabetes consuming them. Let's not forget that you can only die (or be put to death) once, so exactly what sort of disincentive does a medically-condemned person have against playing not-nice in the social order of things?  In short we either cut the crap when it comes to both medical "care" and stop pushing "foods" that are literal poisons or it's going to end in massive amounts of pain and death and the day when it comes is visible in the near future.  The only question is whether it comes slowly and painfully through disease, violently through the people being dispossessed of everything via "medical businesses" and taxes extracted to "give" to those people and firms leading the people to ultimately revolt -- or both at once.

The timeline on this was decades, we ignored it, it was then fifteen years (roughly, when the Ticker began publication) and we ignored it again, choosing to focus on the "joy" of electing a "black President" who the people believed would "pay my gas and mortgage" while bailing out all the scam artists in the banking sector.  For good measure we gave Obama free license to top it all off with frauds like Solyndra and "forced" medical insurance via Obamacare.  In response the pundits and markets cheered, the latter tripling since 2009.

Having squandered the time we had instead of addressing the issue we now have four to five years remaining before it all goes to Hell and we, in America, have front-row seats that are well within the blast radius.

So no, I'm not going to give you a bullet-point rundown this year.  Instead I'm going to point out that since the bond market has decisively broken on both a monthly and annual basis its 30 year bull market trendlines, meaning that turning the leverage crank to "goose" earnings in the markets is no longer possible, nor is doing the same possible for governments whether here or elsewhere and thus that game is in fact over.

Let me remind you how this crank-turning has worked for the last 30 years, since people have short memories and I've only written a dozen or more Tickers on this, say much less the chapter in Leverage on same.

30 years ago you borrowed $1 million.  The interest rate was 10%.  You needed $100,000 a year in income to pay the interest coupon.  Governments and businesses never, ever, pay off those bonds -- they roll them over endlessly when they mature.  If you doubt this then go look at both corporate and government debt on the Fed Z1; neither has ever decreased by one dime, even during the 2007-2009 crash.

Ok, so then rates drop over time to 5%.  You could take that windfall of $50,000 in interest payments saved every year when your bonds are rolled and spend it somewhere.  But $50,000 is small ball because it will take 20 years for that savings to amount to a million bucks.  The alternative is that you can choose to keep paying $100,000 a year in interest but borrow another million and spend it right now.  Guess what business and government did?  Now you have another million to "spread around", whether it makes your P/E better, is handed out in social spending or whatever.

Rates continued to fall.  Over time they fell until just recently good credits in the corporate and government space could borrow for several years at rates of 1%!  So they did.  Now it's not $1 or $2 million that's out and has been spent it's $10 million, with the same $100,000 interest payment due.

But what happens if the rate goes up just 1% from there -- to 2%?

Now you have a big problem.  You either need to come up with $5 million in cash to retire half the bonds when they roll, since you only have $100,000 for interest payments or you're ****ed.  In the corporate sphere you can no longer "turn the crank" of leverage to goose "earnings", fund buybacks of shares and similar -- you now not only have rapidly increasing interest expense you can't borrow any more money because you can't pay the coupon on it given your current level of indebtedness.

Look at the stock market, size of government and government debt at all levels.  The cost of borrowing fell by more than 90% during this 30 year time period and that means ten times as much leverage became available.  Only about half of the market and government's gains over that time can be attributed to technological progress -- that is, productivity improvement.  The rest is a mathematical function that came from the increase in leverage.  But leverage is a two-edged sword and the laws of mathematics are not suggestions; it multiplies "earnings", "profits" and similar but it also multiplies losses by an equal amount.  It is why banks blew up in 2008.  It is why companies blew up in 2000.

And that is why it will all blow up if we don't cut the crap right here, right now.  Housing. Stocks. Bonds. Government at all levels; local, state and federal.

And you, especially if you have debt.

Not one person under the age of 50 has any business or political memory of the world before the declining bond market rate paradigm established itself in the 1980s.  Not one person folks -- because they were all either children or not yet born at that time.  None have ever run a business, invested a nickel or made public policy during that time.  Since executives tend not to actually become executives before they're in their 40s and 50s, and the same is generally true for politicians, this means that essentially nobody with either political or business power has ever lived through or made policy in an environment where rates were not generally declining over time.

All the people who have done it and thus know how said environment constrains your actions are dead.

We can't hide the impact of our idiocy in the medical system and "free trade" through machinations from money and fiscal policy, whether in government or private business, any more.  We're going to take it long and hard, or we're going to stop it before it consumes us.  Those are the only two choices because we can't finance our way out of it, we can't cost-shift it to other nations and we can't do a damned thing about the laws of mathematics either.

And with that I will leave you with the fact that this coming year I intend to spend more time outside, more time writing a novel I've been working on for quite a while (the first of a trilogy) which I may choose to publish if we get our act together and thus I have some possibility of keeping some of the profits thereof and more time seeing and doing the things I enjoy, along with taking the steps to further reduce my economic footprint.

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Oldno7
Posts: 2534
Incept: 2008-11-14

RECALL STATE USA
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I received this today in an email from a friend. There is a blog for The Rant which I checked out. Below are his feelings about Trump and predictions of things to come for what it is worth. If you don't want something like this posted no worries.

An interesting read


This guy is a futurist and a Democrat with no love for Trump, but his predictions are reasoned and make some sense.

Joel Ross writes a subscription newsletter called The Ross Rant from New York City for real estate investors. He provides an interesting perspective on the Trump presidency.


****************************** ****************************** *******


The black swans held a massive victory party last night. Not because Trump won, but because they showed the world that they are the real rulers.

Being a NY real estate guy, I have always known Trump is a terrible person. My former partner who at one time was worldwide head of real estate at Citibank, hated him. She and he had bitter battles when he was bankrupt and she was seizing assets. I know other bankers, lawyers and contractors who have had dealings with him, and nobody had good things to say. However, now he is president and we need as a nation to be fully supportive or the world will come apart. As I feared the press is already on the attack with their usual rhetoric. CNN today was its usual self - attacking him and having Chris Cuomo and Amanpor make stupid statements, still blaming the Russians. MSNBC actually had Al Sharpton on as a commentator. Shows you how out of touch the media is. Kelly Ann told Cuomo to stop the negativity and he went on to try to claim "it is not us, it was the campaigns". The press just does not get it. The NY Times was a loser for the last several years, and it will continue to decline at a faster pace. CNN has lost the battle to Fox and will likely have to change out the commentators who are now completely discredited. Many years ago Connie Chung made a luncheon speech I was at, and she said the press had devolved into a bunch of lazy unprofessional kids who just rush out a story without bothering to check veracity. She decried how the press had become rumor mongers and unprofessional. They sure have. They will probably not change much until they realize the world has moved on to social media and the press has minimal credibility now.

If you have been reading The Rant for a long time you know I have been saying the world is changed and very high risk, and the black swans are circling. We just entered a major inflection point in history. I have been reporting that in Europe the right wing is ascendant. LePen is likely to win the French election next year. The EU is going to come apart once that happens and now with Trump in power that trend will accelerate. The EU will realign into blocs and there will be massive turmoil as things sort out over the next several years. The French will go back to the Franc. Germany will shift right as the refugees create social, crime and fiscal issues. As ISIS gets destroyed they will try to wage war in Europe thru more terror attacks. You do not want to invest in Europe . The world is rapidly shifting right and the changes will be generational. Brussels will be neutered. NATO countries will invest much more in defense and will be forced to build up their armies.

Here is what I believe will happen in the US . Trump has two years to make massive changes and this is what I believe they may be. Obamacare is replaced with some type of more free market plan that Ryan already has. Corporate taxes will be reduced to maybe 15% or maybe a bit higher. Personal taxes will be reduced. All executive orders by Obama will be reversed. Most of the massive regulation Obama put in place will be cancelled. The Supreme Court will get a conservative justice right away and Ginsburg will try to hang on until she dies in office to try to deny him her seat. She will not last 4 years. Trump will get at least 2 and maybe 3 judge picks. The Supreme court will decide by what strict constructionists think the constitution says not the left wing politics of Sotomayor. It will be much more pro-business. Antitrust cases will go away. Sanctuary cities will lose funding and San Francisco and Berkley and Boulder will go nuts. The border will somehow be secured and Mexico will not pay. Border Patrol will be materially increased. Gang members will be arrested and deported but everyone else will get to stay here. Ryan will stay as Speaker. Trump will do what any good NY real estate guy does, he will get up from the table until he gets a deal close to what he wants.

That is key to a lot of what Trump will be able to do. If you listened carefully to what he said, it was "I will redo NAFTA and will walk from the table if I do not get what we need".

There will be a revised NAFTA but Mexico will suffer a lot because many US companies will not move plants there until they see what revised NAFTA says. They will also not defy Trump early on and risk his wrath. Mexico takes a big hit. The Pentagon and US defense contractors are big winners. Defense spending will ramp up by huge numbers. The military will add over 200,000 people over the next two years. Weapons spend will dramatically increase. This will add a lot of new jobs between the additional military and the added jobs in defense plants. Private equity will take a big hit with carried interest going away and this will make a small part payment for the tax cuts. Estate taxes will mostly go away. Cops will be respected again And racial strife will end as Trump tries new ideas to build charter schools, and rebuild the ghettos. There will be no more honoring the families of the thugs like Brown and Travon the way Obama and Hilary did. He will honor the cops. The downtrend in crime will get reinstated. Transgender anything will go away.

The military will be told to go win wars and not be social experiments with transgender soldiers. Rules of engagement will be changed to kill the enemy instead of cater to political correctness. There will be an infusion of another 5,000 US soldiers into Iraq and more into Syria to back up the destruction of ISIS . The bombing campaign will be stepped up to what it should be. By March ISIS will have been defeated. They will try to carry out major terror attacks, but now the world will call Islamic terror what it is and there will be a more aggressive fight and coordination. Putin and Trump are from the same mother and will get along. Putin is like all bullies - he will realize he cannot push Trump around like he does Obama and he will work out a modus vivendi because he knows he has at least 4 more years to deal with a new US president. Bullies back off if they find they cannot intimidate the other guy. The Iran nuke deal will get torn up and Iran will find itself back under sanctions. The Germans will scream but Merkel is now in a very weak position so she will not be able to stop Trump from re-imposing them at least for US companies and anyone wanting to do business in the US especially banks. This will be world changing. The Saudis won big on this, Israel won huge. Developers win because the EPA will be defanged. Climate change legislation is dead and the Paris pact will be defunct.

College campuses will no longer have the threat that unless they find a bunch of young guys to charge with sexual whatever they lose funds. PC on college campuses will be pressured to end although for quite a while there will be protests and other such things. Today professors are telling students they do not have to take exams because they are so upset. Give me a f-ing break. This is exactly what is wrong with American colleges today. It is just telling kids boo hoo if you feel bad you get excused from work.

I still think Trump is nuts and a terrible person, but he is president now so we need to deal with reality of what next. Paul Ryan has already reached out to heal the rift and they have already planned a quick special session to pass repeal of Obamacare and undo the regulations and do other things quickly. Ryan will remain as speaker. The SCOTUS vacancy will be filled immediately.

Most important the entire world is about to change. We will see if for good or bad but change it will in massive ways. The tide of anti-socialist, anti PC, anti-diversity, anti-entitlement, anti-establishment of the past 70 years is washing across the world and Trump is simply the ultimate example of what had already been happening with Brexit and in Europe . As far as the stock market- it will now rise. Taxes will get cut, the Supreme Court will not be activist, anti-trust will end, some type of infrastructure program will be instituted, defense spending will jump, banks will be free to lend, regulations will be drastically reduced, and corporate profits will rise.


Go all in now. You already see the market reaction is up after the shock. Wall Street elite misplaced their bets, Hollywood and the press way over played their hands, and college professors and administrators will have to get over it. Hilary and crew go to jail.

I started Ross Rant in late 2007 when I told a tiny group of friends the market was going to crash and nobody believed me. I sold out of the market in May 2007. My broker thought I was nuts. In January 2008 I told people at the big hotel conference that the hotel industry was going to crash in 2008. They told me I was stupid. I began emailing my little group of friends with these kind of thoughts and so the Rant was launched. They encouraged me to expand that, and so began the Rant. In August 2008 I told a few friends driving to a golf outing that Lehman would go bankrupt, and nobody believed me. So now I said Trump and the Republicans would win, and few believed me. In fact, one of my good friends of 50 years bet me $100. So how did I do that. Not smarts. I have no data base. Difference is, I spend a lot of time observing trends and traveling, and talking to real people on the ground all across the country at all walks of life. I do not read the NY Times nor do I watch NBC or CBS or CNN. I talk to lots of real people who are doing whatever they do day to day and try to glean tidbits and connect the dots. Any of you can do the same and probably better than me. I just try to disconnect myself from what the talking heads are saying, and the latest fad of political thinking, and try to see it from a distance with some objectivity.

To my Democrat friends, suck it up - the world just changed dramatically - we will see if for better or worse.

Joel Ross
Citadel Realty Advisors
646-408-4102

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IT'S THE SPENDING STUPID The US must become less a government of men, and more a government of LAW.When people lose everything and have nothing left to lose they lose it -Gerald Celente
Cerich
Posts: 929
Incept: 2008-12-17

ga
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well I read the first paragraph where it said that people that were trying to get Trumps corporate assets when the company was in BK proceedings not liking him and decided there was no merit to the rest. It's ****ing simple actually, Trump was supposed to fight for his company, BK was about getting the company viable again and retaining as many assets as possible is vital. He must have done it well because those that wanted them didn't win...poor butt hurt people that made bad business bets and lost.. that's life snowflake
Tickerguy
Posts: 147891
Incept: 2007-06-26
A True American Patriot!
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Quote:
He must have done it well because those that wanted them didn't win...poor butt hurt people that made bad business bets and lost.. that's life snowflake

Exactly.

When you have an adversarial process in business it's not about being nice, it's about winning through any lawful means you have available to you.

There were a LOT of people who didn't (and probably still don't) like me who did business with me in the '90s. Should I apologize to any of them? Oh hell no.

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Winding it down.
Cerich
Posts: 929
Incept: 2008-12-17

ga
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a while back I got a demand letter from an attorney representing a competitor that was threatening to sue me over what they thought was a patent violation (it wasn't and their patent sucked with loopholes big enough to drive a fleet of battleships thru).

Anyhow, the carrot with the stick was it would all go away if I bought their product(at 3x the cost) instead of the one that they claimed violated their patent. They also wanted me to share my sales data on how many of the product I had sold.

I sent them a letter explaining that their patent sucked, that I wasn't violating it and their "offer" was akin to offering to spit on their dick as they raped me in the ass and claiming it was for my pleasure.

I never got any further response from that company, and they didn't follow thru on their threats.

What did happen is the company I sent said letter to was very much part of the "ole boys club" in my industry, and they showed that far and wide inside the industry in an attempt to demonstrate how "out of control I was".

I had been getting letters like that on a fairly regular basis from others in the industry that bank on being patent trolls who figure I would pay a royalty versus fighting a potentially expensive legal battle.

That was the very last such letter I have ever received. I am really glad they choose to share what a ******* I am. It worked out well for me.

I actually shared that letter with Karl, it was one of my better ones. :-)

Reason: spelling
Dennisglover
Posts: 518
Incept: 2012-12-05

Huntsville, AL
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Joel Ross wrote..
... Antitrust cases will go away ... anti-trust will end ...
I certainly hope that he means "Violations of 15 USC 1 will disappear," and not that anyone and everyone will be immune to prosecution and punishment under the Law! He seems fairly lucid on many of the points he makes here, so I'm not hopeful he means what I want him to mean.

How are those other arguably good things going to happen apart from a forceful and determined enforcement of the Rule of Law?

If Lex is not Rex not one of those other things has a chance!

No, I don't get it, not at all.

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TANSTAAFL
Tickerguy
Posts: 147891
Incept: 2007-06-26
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He means what he says - 15 USC is a dead letter and you're just plain dead.

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Winding it down.
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