Up and Down Wall Street


Bitcoin for Your Thoughts? Buy Gold


Virtual currency's bubble bursts, as the precious metal looks undervalued.

 Sound as a bitcoin? That doesn't sound as if it will enter the lexicon, at least not anytime soon, after the so-called virtual currency soared and crashed last week, not long after bursting into the consciousness of the financial world.

The Bitcoin was supposed to be a 21st-century monetary unit, an alternative not controlled by any government and therefore immune to its manipulation. While Bitcoins have been around for a few years as an intellectual exercise among libertarian-inclined computer geeks, they only took off in recent weeks as actions of various governments to manipulate—or in the case of Cyprus, confiscatemoney balances went to unprecedented extremes.

In May 2010, U.S. computer programmers supposedly paid 10,000 Bitcoins—then worth less than a cent apiece—for a couple of pizzas. That was long before the currency's bubble and bust last week. At its momentary peak, a Bitcoin fetched $266, which would have valued those pizzas at over $2.6 million (I don't know if toppings would be extra). But by week's end, the price of a Bitcoin had crashed to $54.25. While it was beginning to be used as a medium of exchange, the Bitcoin clearly wasn't fulfilling money's other function, to be a stable store of value.

Ben Levisohn, Barron's emerging-markets blogger and columnist, who has been covering the Bitcoin before it emerged into the mainstream, pointed out in a post Friday the similarity to another burst bubble of a generation ago—the Hunt Brothers' attempted corner of the silver market in late 1979 and early 1980.

You'll recall those days of yesteryear, when the dragon of inflation had yet to be slain by Paul Volcker, then head of the Federal Reserve, and paper currencies were held in suspicion, if not outright contempt. Gold also was in the process of hitting its then-peak of $850 an ounce. In any case, Ben notes, silver spiked nearly 600%, to more than $40 an ounce, but by May 1980, the metal had collapsed by 70%, to a tad over $12. "The lesson for investors: When you see something quintuple its price in a matter of months, take some profits," he counsels. (The post can be viewed here, with some illuminating charts of the two bubbles and busts.)

Skepticism about government fiat currencies now, if anything, is even greater, than it was three decades ago. The Bank of Japan has embarked on a massive money-printing scheme that has lifted Japanese stock prices nearly 50% but effectively devalued the yen 20% since late last year when it became apparent that Abenomicsnamed for the new prime minister, Shinzo Abe—would be adopted. (The outcome may be rather less salubrious than new Japan bulls expect, see Does Japan Face a Debt Apocalypse?.) Meanwhile, the Fed continues on its trillion-dollar-a-year bond-buying program, joined by virtually every other central bank around the globe in expanding its balance sheet. (The European Central Bank is a notable exception, letting its balance sheet shrink lately. The next crisis, when—not ifit comes will assuredly spur the ECB back into action.)

So, it is incongruous that goldmoney that can't be printed, just minted—would enter a bear market Friday. To be sure, a number of big Wall Street banks had declared the end of the bull market in bullion in recent weeks. Yet, if the Street were a redoubtable forecasting indicator, analysts wouldn't have been falling over themselves to boost price targets on Apple (ticker: AAPL) to infinity and beyond last year when the stock crested at $705—before its long slide to $429.80 by Friday's close.

Gold entered so-called official bear market territory by dropping 20% from its peak of $1,900 an ounce, hit in the speculative frenzy of September 2011. On Friday, gold fell through the $1,500 mark, with the active nearby Comex futures shedding 5.7%, or $88.80, to $1,476. The real story was told by the action in the SPDR Gold Shares exchange-traded fund (GLD), which slid 4.7% Friday as 55 million shares traded, five times the average daily volume of the past three months. Barrons.com's technical guru, Michael Kahn, relates that the bottom fell out when GLD (it's better known by its ticker rather than its proper name) broke below last May's lows.

Beyond price, the assets of GLD tell the story of the end of the gold frenzy. Barron's ETF expert, Brendan Conway, notes that GLD briefly was the world's biggest ETF, with assets north of $77 billion in August 2011, topping the SPDR S&P 500 ETF (SPY) for a time. By the end of 2012, GLD still had $72.2 billion. But by last Thursday, its assets had shrunk by 18%, to $59.4 billion. No doubt Friday's collapse brought a further exodus, which certainly added to the selling pressure.

The carnage wasn't confined to the yellow metal. Silver also fell 5%, with its ETF, the iShares Silver Trust (SLV) plunging that percentage on 3.5 times recent average volume. And gold-mining stocks, which already had substantially unperformed the metal, took a similar hit, with the Market Vectors Gold Miners ETF (GDX) losing 5.7% on 2½ times recent average volumen.

In a piece published in Barrons.com's Wall Street's Best Minds feature, Tocqueville Funds' John Hathaway contends that the selloff in gold was "a contrarian's dream scenario." Writing before Friday's 5% plunge, he noted the contrast between the widespread disaffection with the metal, encapsulated in a New York Times Thursday article, with the positive fundamentals for it: negative real interest rates, worldwide quantitative easing, and governments' new confiscatory inclinations, as demonstrated in Cyprus.

Meanwhile, the global debasement race to the bottom has produced some absurdities. Late Friday, the U.S. Treasury said that it is monitoring Japan's monetary expansion and would press Abe to refrain from competitive devaluation. With the Fed's printing press operating in overdrive, it's truly a case of the pot calling the kettle black.

The rush to the Bitcoin may have been a speculative bubble, but it may also represent an inchoate search for an alternative to government-controlled paper currencies.

Gold would fit that bill, but it appears caught up in a liquidation of commodities, such as base metals and petroleum products, and as a component in commodity indexes. Commodities are produced to be consumed. Gold isn't consumed; virtually all the gold ever extracted still exists as a store of value or a thing of beauty. That makes it fundamentally different from commodities.

Some day, an alternative to gold that doesn't require the tedious and expensive mining, storage, and transfer of the metal may be conjured. Those difficulties gave rise to paper money, which is being abused. For now, gold no longer is loved, which, to an independent-minded contrarian investor, only adds to its allure.

IN CONTRAST, THE QUEST for stability is evident in the equity market, where the most ardently desired stocks are those that act the most like bondspaying a decent yield while exhibiting a lack of volatility.

Those attractive attributes have been encapsulated in an ETF, the PowerShares S&P Low Volatility Fund (SPLV), which has not only levitated in a virtual straight line since the turn of the year, but also has seen its assets burgeon. Through Thursday, the low-volatility ETF was up 15.6% in 2013, some 26% better than the 12.4% gain for SPY, according to Morningstar. And the exchange-traded fund has attracted $1 billion this year, bringing its assets to more than $4 billion, not an inconsiderable increase.

The PowerShares ETF features stocks that not only are remarkable for their lack of stomach-churning swings, but also that they trade at or near all-time highs: Johnson & Johnson (JNJ); H.J. Heinz (HNZ), whose attributes have attracted Warren Buffett's Berkshire Hathaway (BRKA, BRKB); PepsiCo (PEP); General Mills (GIS); Consolidated Edison (ED), and SCANA (SCG).

And while they're not among the top 10 holdings of the ETF, Colgate-Palmolive (CL), Clorox (CLX), and Kimberly-Clark (KMB) all are at or near historic peaks.

Meanwhile, Fastenal (FAST), another homely company, which distributes industrial, instead of consumer, goods, has been rolling over. It has slipped 7% from its recent high, reached in February.

That is consistent with the slide in industrial commodity prices, notably Dr. Copper, or iron-ore prices, which have kept the pressure on Cliffs Natural Resources (CLF), which ticked higher on some buying a couple of weeks ago by bottom-fishers, but since has slid back.

In an economy of slow growth and low interest rates, assured cash flows attract high valuations. So it's no wonder that an ETF that is composed of companies peddling pedestrian products would be a lure to investors seeking bond-like attributes.

Technology companies, which also may boast free cash flow and triple-A balance sheets, don't enjoy the same sort of investor ardor.

Witness the pummeling of Microsoft (MSFT) on last week's news of a plunge in personal-computer shipments in the first quarter. Or the valuation of Intel (INTC), trading at just about 11 times forecast earnings, little more than half the price-earnings multiple of toilet-paper and soap peddlers.

Low interest rates and low growth induce investors to bid up investments that produce stability and cash flows. As earnings season ramps up this week, investors' demand for certainty and stability may be tested.

Alan Abelson is out this week.

Things Have Gone Too Far

April 12, 2013

by Doug Noland

It seems a case of too much liquidity for too long having chased a limited amount of global risk assets. Instability.

“The Fed has been talking about asset bubbles since the ‘irrational exuberance speech which was 1996. So it’s nothing new. We had a big bubble in the nineties. A big bubble in the two thousands. Those two bubbles ended very differently. The Fed’s been talking, talking, talking about this. So it’s certainly been a concern. It is a concern today. But it’s like nothing new. This has been going on for 20 years. Frankly, there aren’t good answers because we don’t have great models of financial instability.” Federal Reserve Bank of St. Louis President James Bullard (February 21, 2013, in reference to a question on Fed governor Jeremy Stein’s paper)

The Fed’s been talking, while I’ve been doing my best to study bubble and Credit dynamics. I know we’ve again reached the stage of the cycle where those warning of Bubble risks have been discredited. This type of analysis tends to be humbling, a dynamic I became comfortable with some years ago. And at risk of sounding arrogant, I am comfortable stating that Federal Reserve officials remain for the most part dangerously uniformed when it comes to Credit, speculative market dynamics and Bubbles. At the heart of the problem, the Fed lacks an analytical framework for understanding the causes and consequences of financial instability. And especially with how global markets have been behaving, these issues deserve keen ongoing focus.

As difficult as it may be for most to believe, the world’s preeminent central bankers are a select group of highly intelligent public servants that suffer from a huge void in their understanding of contemporary finance. And the issue goes much beyond the lack of “great models of financial instability.” They subscribe to an erroneous and outdated doctrine of how finance operates and seem to share a flawed perspective with respect to the interplay of contemporary finance, financial markets and economies. Worse yet, Dr. Bernanke is wedded to a (Milton) “Friedmanite revisionists view that the “Roaring Twenties” was the “Golden Age of Capitalism” brought needlessly to an end by negligent central bankers unwilling to print and inflate. His fixation has been with policy mistakes in the 1930s – with little apparent interest in those from the 20s, 70s, 80s, 90s or 2000s.

To be sure, finance fundamentally changed during the ‘90s. And while this trend had been in play for some time, the explosion of market-based finance took the world by storm throughout the 1990s with the huge growth in securitizations, the GSEs, derivatives, “repos,” “Wall Street finance”, and the hedge funds. Importantly, the Greenspan Fed moved to a market-friendly regime with transparent pre-commitments to pegged short-term interest-rates, market liquidity backstop assurances, and asymmetrical policy responses.

The impaired banking system (from late-80’s excess) certainly was an important factor in the “activistFed incentivizing non-bank Credit growth early in the decade. The deregulation wave played an integral role. Surging stock prices and attendant Notions of New Eras and New Paradigms created a backdrop supportive of financial and policy experimentation. There was, as well, Washington’s use of the ballooning GSEs to promote economic, social and political agendas.

The upshot was an unprecedented explosion of market-based Credit, much of it directed toward the asset markets. A complacent Federal Reserve failed to recognize the profound changes in finance until it was too late. The S&P500 returned 423% during the nineties, and by the end of the decade a full-fledged mania had taken hold in Nasdaq and tech stocks. There was by that point, apparently, no turning back. The world had entered An Era of Mispriced Finance.

Far too little analytical attention is paid to nineties’ novelties and transgressions. The 2008 collapse of the mortgage financial Bubble highlighted huge policy blunders, but the seeds for that (and future) crisis were planted in the previous decade’s financial and policy transformations. Federal Reserve policy had become integral to a dangerous regime of over-expanding mispriced finance, asset inflation and Bubbles.

Dr. Bernanke was brought in as the preeminent academic authority in deflations and post-Bubblemopping up reflationary measures. He didn’t for a moment consider adjusting for previous policy and market shortcomingsnor dare to move policy back in the direction of sounder and time-tested doctrine. The pricing or mispricing of finance was of no concern; he was just determined to have much more of it.

The Bernanke Federal Reserve became a laboratory for testing radical academic theories. Rather than recognize the clear risks of aggressive central bank financial system and market interventions, the Fed became the biggest inflator of asset Bubbles the world has ever known. They remain hard at work, steadfast and uncompromising in the face of conspicuous shortcomings and potential catastrophic failure. And, ironically, the greater the global dominance by inflated securities markets, the further the shift of central banking governance to academics with little experience or practical understanding of the functioning of contemporary market-based finance.

The enterprising Greenspan Fed committed monumental errors. It monkeyed too much with system mechanisms for pricing finance and risk - and it monkeyed too much with the financial markets. Fed policies were pro-Credit, pro-aggressive risk intermediation, pro-risk distortions, pro-asset inflation and pro-Bubbles. Greenspan’s policies incentivized leveraged speculation, an explosion of non-productive debt growth and problematic resource misallocation. The Bernanke Fed became only more pro-asset inflation, pro-government debt and pro-Bubbles, moving to only further incentivize speculation in securities markets around the world.

The Greenspan Fed ensured speculators predictable low-cost funding that was used to leverage MBS and higher-yielding Credit instruments. This ensured unlimited cheap borrowings for home (and other asset) purchases. The Bernanke Fed pre-commits to years of near zero cost finance for leveraged speculation, while monetizing Trillions of debt and MBS. The Greenspan equity marketput” was expanded to include Treasuries, MBS, muni debt, junk, student loans, etc. Bernanke significantly compounded Greenspan’s monumental errors.

Financial markets came to play an increasingly dominant role throughout the nineties. Leveraged speculation evolved to an all encompassing role in debt, equities and commodities markets. This should have been clear after the 1998 LTCM fiasco - and was made obvious with fragilities that manifested during the 2000-2002 bursting of the “technology” and corporate debt Bubbles. Serious errors didn’t so much as slow the move away from traditional central bank doctrine and policymaking. That Bernanke’s (“mopping up” and “printing”) reflationary doctrine only exacerbated myriad costs associated with mispriced finance and asset markets’ dominance was made abundantly clear in 2008/09.

So, we’re now in the fifth year of the Bernanke Fed’s experimental effort to directly inflate asset markets. Somehow, policymakers, economists and market pundits still argue that low CPI inflation affords global central bankers unusual flexibility to implement aggressive money printing operations. This completely ignores what should be, at this point, rather conspicuous asset Bubble risks.

Market commentators and the media are these days in a nineties-like fixation with record U.S. stock prices. Meanwhile, global markets show ongoing signs of heightened instability. Two-year German yields ended the week at one basis point, with 10-year yields not too far off record lows at 1.26%. The emerging markets continue to trade unimpressively. Key commodities, meanwhile, trade like death. The CRB Commodities Index closed Friday at the lowest level since last July. Friday saw crude hit for $2.22, gasoline 3.3%, copper 2.7%, palladium 3.3%, platinum 2.6%, aluminum 2.5%, nickel 2.6% and tin 3.7%. And the precious metals made the industrial metals look precious. Gold was hammered for $78 on Friday and $98 for the week, while silver was hit for 4.9% and 3.3%. The HUI Gold index now sports a 2013 decline of 32.2%.

With global central bankersprintingdesperately, the collapse in gold stocks and sinking commodities prices were not supposed to happen. Is it evidence of imminent deflation? How could that be, with the Fed and Bank of Japan combining for about $170bn of monthlymoney printing.” Are they not doing enough? How is deflation possible with China’stotal social financingexpanding an incredible $1 Trillion during the first quarter? How is deflation a serious risk in the face of ultra-loose financial conditions in the U.S. and basically near-freemoney available round the globe?

Well, deflation is not really the issue. Instead, so-calleddeflation” can be viewed as the typical consequence of bursting asset and Credit Bubbles. And going all the way back to the early nineties, the Fed has misunderstood and misdiagnosed the problem. It is a popular pastime to criticize the Germans for their inflation fixation. Well, history will identify a much more dangerous fixation on deflation that spread from the U.S. to much of the world.

I see sinking commodities prices as one more data point supporting the view of failed central bank policy doctrine. For one, it confirms that unprecedented monetary stimulus is largely bypassing real economies on its way to Bubbling global securities markets. I also see faltering commodities markets as confirmation of my “crowded tradethesis. For too many years (going back to the 90’s) the Fed and global central bank policies have incentivized leveraged speculation. This has fostered a massive inflation in this global pool of speculative finance that has ensured too much market-based liquidity (“money”) has been chasing a limited amount of risk assets. Speculative excess today encompasses all markets, including gold and the commodities. Over recent months, these Bubbles have become increasingly unwieldy and unstable. Commodities are the first to crack.

IMF head Christine Lagarde this week made an interesting comment: “Thanks to the actions of policymakers, the economic world no longer looks quite as dangerous as it did six months ago.” I was convinced things looked dangerous on a globally systemic basis this past summer, yet policymakers and analysts at the time admitted to only a bout of manageable stress in Europe. Well, in the past six or so months we’re seen the “do whatever it takesDraghi market backstop, an unprecedented $85bn a month of Fed QE and now the Bank of Japan’s samurai version of “do whatever it takes” “shock and awe$80bn monthly printing. Economies aren’t buying it.

The Bank of Japan’s Kuroda positioned himself as the poster child for central bankers gone wild. When central banks imitate Dirty Harry and others are determined to shock and awe the marketplace, well, you have to think things have gone far off kilter. When the Fed obfuscates and ties massive money printing to a politically palatable unemployment ratethings have gone too far. When policymakers, economists and pundits around the globe ramble on and on about low inflation and completely disregard dangerous asset inflation and Bubbles, things have definitely gone too far.

Japanese 10-year yields jumped 8 bps this week. The markets are keen to gauge whether the BOJ just went too far in the minds of investors in long-term Japanese debt. The Chinese Credit system is in the midst of a historic year of Bubble excess. Have things gone so far that Chinese officials will finally respond with meaningful (and Bubble-jeopardizing) tightening measures? In Cyprus, a country of less than a million faces bailout costs of $23bn, more than a year’s GDP. Have these bailouts about gone far enough – for the troubled countries sickened by “austerity measures and “troikacontrol? And how about the others sick and tired of writing bailout checks and participating in a dysfunctionaltransfer union”? How far is too far for runaway U.S. equities, bond and asset Bubbles that bring new meaning to the phrase systemic Credit and economic Bubble”? How long will the Bank of Japan’s shot of opium numb the world’s senses?

From my perspective, recent desperate measures from the BOJ, Fed and ECB put an exclamation mark on twenty years of failed monetary management. The view that this ends rather badly is confirmed by unrelenting bids for bunds, Treasuries and “safe havensovereign debt around the globe. It is further confirmed by the widening gulf emerging between highly inflated and speculative global securities markets and notably moribund (and increasingly stimulus-resistant) real economies.

Forecasting Bubble behavior is a tricky, tricky business. Yet I’ll stick with the view that Europe is the initial major crack in the “global government finance Bubble.” And while Draghi resuscitatedrisk on” throughout Europe, this actually works to exacerbate fragilities as that region struggles with a deep and evolving crisis. I’ll stick with the view that five years of global financial excess has helped push China to the status of a crazy dangerous Bubble. And I see no reason to back away from the analysis that the emerging economies in general suffer from a dangerous Bubble mix of rampant Credit excess, problematic imbalances and deteriorating economic performance. Moreover, I’m content with the view that the “global leveraged speculating community” is one huge accident in the making.

Perhaps the crack in commodities markets is indicative of a confluence of unfolding faltering Bubble risk in Europe, China, the emerging markets and the hedge fund community. The Bank of Japan’s obtrusive market intervention provided a huge windfall for some while hammering others, not unlike recent obtrusive interventions by the ECB and Fed. All along the way, global risk markets become increasingly unstable - if not hopelessly dysfunctional. At this point, risks associated with repeated attempts to cure post-asset Bubble stagnation with “helicopter money” should not be all that difficult to discern.

Cyprus goes from bad to worse by the day; so does Portugal

By Ambrose Evans-Pritchard Economics

Last updated: April 12th, 2013

The Bundestag
Merkel has told the Bundestag not to increase the Cyprus rescue package

On cue, Angela Merkel's Christian Democrat base in the Bundestag has warned that there can be no increase in the EU-IMF rescue package for Cyprus.

The Cypriot people alone must carry the extra cost of up to €5.5bn beyond what was already agreed in the €17.5bn deal in March.

"Should that not be possible, the assent of the German Bundestag next week is out of the question," said Christian von Stetten, a key member of the finance committee.

"The escalating gap in funding is huge and confirms my doubts in the finance framework prepared by the Troika and the Republic of Cyprus. It is going the way of Greece. Ever more funding gaps keep coming to light," he said.

So we have a stand-off yet again. Cypriot president Nicos Anastasiades says the country needs "extra assistance", and indeed it does since the extra demands on Cyprus are a further 28pc of GDP.

If the eurozone refuses to offer any further help, there must surely be a greater temptation to withdraw from the euro and default on sovereign debt in a classic restructuring deal with the IMF.

That is what the IMF is there to do. Such restructurings have been done countless times across the world over the last 50 years. It is traumatic, but countries usually recover after a couple of years.

The crucial point for the Cypriot people is that the cost-benefit calculus is moving in that direction. Whether they have understood this is another matter. They may in due course as the ghastly reality of Troika policy hits them.

And just to clarify, the reason why the rescue costs are shooting up is because the Troika has finally recognised that its treatment of Cyprus is pushing the economy over a cliff. The depressionary spiral itself is causing the numbers to spike.

So Cyprus is very far from being solved, and so is Portugal. A fresh Troika leak, this time to the Pink Sheet, has confirmed what anybody following Portugal already suspected. The country is stuck in a debt-compound trap. The economic slump is proving much deeper than forecast. The deficit has been rising not falling, in spite of austerity cuts.

Specifically, it will need to need to borrow €14.1 billion in 2014, and €15bn in 2015. This is 30pc more than required when the crisis blew up in 2011. The average interest rate will be higher than it was then.

The leaked report said: "Portugal has the challenge of needing to finance more than pre-crisis albeit with a sub-investment grade rating. There is substantial funding risk for Portugal given that it is still subject to substantial vulnerabilities at the end of the programme."

"The task of issuing medium and long-term debt above what is already held by market participants might be very demanding without an improvement in Portugal's sub-investment grade rating and the build-up of a stable investor base."

In other words Portugal is in a deeper hole after its €78bn bail-out than it was before. Public debt will reach 124pc of GDP this year. The "financing burden" will keep rising until 2017.

Which raises the question, what will Germany and the northern creditor states do if/ when it becomes undeniable that Portugal need a second rescue?

They have given a solemn pledge (another one) that there will be no repeat of the `PSI' private haircut on sovereign debt that is deemed to have been a disaster in Greece. So they have three choices:

a) They violate their pledge and impose a Greek-style debt restructuring, destroying bond market confidence and risking contagion to Spain and Italy.

b) They take the money from Portuguese bank accounts, regardless of whether the banks have done anything wrong.

c) They pay for it themselves and acknowledge to their parliaments at long last that it costs real taxpayer money to hold EMU together.

I suppose there are other possibilities. They could try to bully the ECB into buying debt, but there are obvious limits to this. Germany's Jorg Asmussen has to agree.

There is of course great sympathy in Berlin, The Hague, and Helsinki for the free-market team of premier Pedro Passos Coelho. His drive for austerity has been nothing less than heroic.

However, there is less sympathy for him at home. The austerity consensus in the Assembleia has collapsed.

Ex-premier and elder statesman Mario Soares said this morning that all opposition parties on the Leftsocialists, Bloco, communists – should get together to "bring down" the government.

"In its eagerness to do the bidding of Senhora Merkel, they have sold everything and ruined this country. In two years this government has destroyed Portugal. We absolutely have to end this austerity," he said.

He also said to Antena 1 that Portugal will "never be able to pay its debts however much it impoverishes itself. If you can't pay, the only solution is not to pay."

"When Argentina was in crisis it didn't pay. Did anything happen? No, nothing happened he said."

Raoul Ruparel from Open Europe said Portugal has now exhausted its "internal devaluation" policy. "Portugal's austerity programme is coming up against huge political and constitutional limits. The previous political consensus in parliament has evaporated. Fundamentally, as so often in this crisis, the eurozone is now coming up against the full force of national democracy. "

The top court ruled a week ago that pay and pension cuts for public workers in Mr Passos Coelho's budget are illegal, driving a coach and horses through the government's whole strategy.

Exports are doing well, but the country's trade gearing is too low (30pc of GDP) to offset the violent contraction in internal demand. External debt is 300pc of GDP. The International Investment Position is 105pc of GDP in the red.

And let me close with this chart that Raoul has put together. It shows that the gap in unit labour costs with Germany is no longer closing. It is widening again.

Click to enlarge

As predicted by so many, the attempt to drive down wages in modern democracy is not only brutal but often impossible. What you gain from wage compression you lose from lagging productivity as investment collapses.

Did nobody ever explain this to them?