Germany dominance over as demographic crunch worsens

Germany's workforce will shrink by 6m over the next 15 years, declining even faster than Japan's

By Ambrose Evans-Pritchard

7:58PM BST 01 Jun 2015

Two elderly Bavarian women in traditional dress drink the typical refreshment of Bavaria, beer, during a big folklore parade in the downtown of Munich, southern Germany

Life expectancy for women is expected to continue rising to 88 and for men to 84 by the middle of the century, creating a massive social burden Photo: AP


Germany’s birth rate has collapsed to the lowest level in the world and its workforce will start plunging at a faster rate than Japan's by the early 2020s, seriously threatening the long-term viability of Europe’s leading economy.

A study by the World Economy Institute in Hamburg (HWWI) found that the average number of births per 1,000 population dropped to 8.2 over the five years from 2008 to 2013, further compounding a demographic crisis already in the pipeline. Even Japan did slightly better at 8.4.
 
“No other industrial country is deteriorating at this speed despite the strong influx of young migrant workers. Germany cannot continue to be a dynamic business hub in the long-run without a strong jobs market,” warned the institute.
 
The crunch is aggravated by the double effect of a powerful post-war baby boom followed by a countervailing baby bust – the so-called “Pillenknick”. The picture in Portugal (nine) and Italy (9.2) is almost as bad.
 
The German government expects the population to shrink from 81m to 67m by 2060 as depressed pockets of the former East Germany go into “decline spirals” where shops, doctors’ practices, and public transport start to shut down, causing yet more people to leave in a vicious circle.
 



A number of small towns in Saxony, Brandenburg and Pomerania have begun to contemplate plans for gradual "run-off" and ultimate closure, a once unthinkable prospect.

Chancellor Angela Merkel warned in a speech in Davos earlier this year that Germany will lose a net 6m workers over the next 15 years, shrinking gradually over the rest of this decade before going into free-fall.

The International Monetary Fund expects the decline in the 2020s to be more concentrated – and harder to handle – than the gentler paces of decline seen in Japan so far.

Britain and France are in far better shape, with an average of 12.5 births per 1,000 in from 2008-2013. The IMF expects both countries to overtake Germany in total GDP by the middle of century and possibly even by 2040, implying a radical shift in the European balance of power.



Light line is birth rate in Germany. Dark line is death rate


Germany’s leaders are themselves acutely conscious that their current hegemonic position in Europe is largely a mirage, certain to fade as more powerful historical currents come to the fore.

The HWWI said the numbers in the crucial 20-65 age group will drop from 61pc to 54pc by 2030, pushing the dependency ratio towards 1:1 and calling into question the solvency of the public pension system. Life expectancy for women is expected to continue rising to 88 and for men to 84 by the middle of the century, creating a massive social burden.

“We want people to face up to the enormity of the problem,” said Dr Andres Wolf, one of the authors of the report.

“It is a fiscal danger and it is a long-term danger to the ability of German companies to innovate and develop new products,” he added.

While ageing societies can enjoy a rise in per capita income for a while, they tend to do so by living off past creativity and intellectual capital. This reserve is exhausted over time. It becomes progressively harder for older countries to remain at the technology frontier.



The HWWI said Germany must open it doors to further immigration of trained workers but fears that it will be a hard sell to voters in the current stormy atmosphere.

The anti-euro Alternative fur Deutschland party (AFD) has broken into several regional parliaments with a hard-line stance against immigrants. There are already almost 10m foreign-born nationals in the country - 12pc of the total – with a further 400,000 migrants are expected this year.
 
Germany cannot easily turn around the demographic tanker. Academic studies show that fertility rates tend to be structural – caused by deeply-rooted cultural patterns and social systems – and change very slowly in peacetime.

The demographic crisis explains why Germany is so determined to run a budget surplus and drive down its public debt ratios, hoping to avoid a Japanese-style debt-trap before it is too late.



Whether this is best achieved by austerity is a contentious issue. Budget cuts have led to a negative rate of public investment over the past decade, even though parts of the German canal system, railways and national infrastructure are slowly falling apart.

The IMF says Germany would do itself and the rest of the eurozone a favour by spending more to prepare for its old age, not less.

jueves, junio 04, 2015

THE EDUCATION MYTH / PROJECT SYNDICATE

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The Education Myth

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Ricardo Hausmann

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MAY 31, 2015 .
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Vermont schoolhouse


TIRANA – In an era characterized by political polarization and policy paralysis, we should celebrate broad agreement on economic strategy wherever we find it. One such area of agreement is the idea that the key to inclusive growth is, as then-British Prime Minister Tony Blair put in his 2001 reelection campaign, “education, education, education.” If we broaden access to schools and improve their quality, economic growth will be both substantial and equitable.
 
As the Italians would say: magari fosse vero. If only it were true. Enthusiasm for education is perfectly understandable. We want the best education possible for our children, because we want them to have a full range of options in life, to be able to appreciate its many marvels and participate in its challenges. We also know that better educated people tend to earn more.
 
Education’s importance is incontrovertible – teaching is my day job, so I certainly hope it is of some value. But whether it constitutes a strategy for economic growth is another matter. What most people mean by better education is more schooling; and, by higher-quality education, they mean the effective acquisition of skills (as revealed, say, by the test scores in the OECD’s standardized PISA exam). But does that really drive economic growth?
 
In fact, the push for better education is an experiment that has already been carried out globally. And, as my Harvard colleague Lant Pritchett has pointed out, the long-term payoff has been surprisingly disappointing.
 
In the 50 years from 1960 to 2010, the global labor force’s average time in school essentially tripled, from 2.8 years to 8.3 years. This means that the average worker in a median country went from less than half a primary education to more than half a high school education.
 
How much richer should these countries have expected to become? In 1965, France had a labor force that averaged less than five years of schooling and a per capita income of $14,000 (at 2005 prices).
 
In 2010, countries with a similar level of education had a per capita income of less than $1,000.
 
In 1960, countries with an education level of 8.3 years of schooling were 5.5 times richer than those with 2.8 year of schooling. By contrast, countries that had increased their education from 2.8 years of schooling in 1960 to 8.3 years of schooling in 2010 were only 167% richer.
 
Moreover, much of this increase cannot possibly be attributed to education, as workers in 2010 had the advantage of technologies that were 50 years more advanced than those in 1960. Clearly, something other than education is needed to generate prosperity.
 
As is often the case, the experience of individual countries is more revealing than the averages.
 
China started with less education than Tunisia, Mexico, Kenya, or Iran in 1960, and had made less progress than them by 2010. And yet, in terms of economic growth, China blew all of them out of the water. The same can be said of Thailand and Indonesia vis-à-vis the Philippines, Cameroon, Ghana, or Panama. Again, the fast growers must be doing something in addition to providing education.
 
The experience within countries is also revealing. In Mexico, the average income of men aged 25-30 with a full primary education differs by more than a factor of three between poorer municipalities and richer ones. The difference cannot possibly be related to educational quality, because those who moved from poor municipalities to richer ones also earned more.
 
And there is more bad news for the “education, education, education” crowd: Most of the skills that a labor force possesses were acquired on the job. What a society knows how to do is known mainly in its firms, not in its schools. At most modern firms, fewer than 15% of the positions are open for entry-level workers, meaning that employers demand something that the education system cannot – and is not expected – to provide.
 
When presented with these facts, education enthusiasts often argue that education is a necessary but not a sufficient condition for growth. But in that case, investment in education is unlikely to deliver much if the other conditions are missing. After all, though the typical country with ten years of schooling had a per capita income of $30,000 in 2010, per capita income in Albania, Armenia, and Sri Lanka, which have achieved that level of schooling, was less than $5,000. Whatever is preventing these countries from becoming richer, it is not lack of education.
 
A country’s income is the sum of the output produced by each worker. To increase income, we need to increase worker productivity. Evidently, “something in the water,” other than education, makes people much more productive in some places than in others. A successful growth strategy needs to figure out what this is.
 
Make no mistake: education presumably does raise productivity. But to say that education is your growth strategy means that you are giving up on everyone that has already gone through the school system – most people over 18, and almost all over 25. It is a strategy that ignores the potential that is in 100% of today’s labor force, 98% of next year’s, and a huge number of people who will be around for the next half-century. An education-only strategy is bound to make all of them regret having been born too soon.
 
This generation is too old for education to be its growth strategy. It needs a growth strategy that will make it more productive – and thus able to create the resources to invest more in the education of the next generation. Our generation owes it to theirs to have a growth strategy for ourselves. And that strategy will not be about us going back to school.
 

Read more at http://www.project-syndicate.org/commentary/education-economic-growth-by-ricardo-hausmann-2015-05#bcVVUDFdCE0s2Dzq.99

Accounting for Inertia

By Rodger Baker

June 2, 2015 | 08:00 GM


Geopolitics, at least in the sense that we practice, is neither deterministic in its approach to understanding nations and their interactions nor simply synonymous with current events or international relations. At its most basic, geopolitics as a discipline seeks to explain the intersection between place and people, or more specifically between place and the nation, and the impact they have on one another. Practitioners assess geography, politics, economics, security, history and society inclusively to build a deeper understanding of nations, sub-nations, regions and the world.

Constraints, Compulsions and Circumstances

Geopolitics teaches us how to identify and assess the compulsions and constraints on nations and their principal actors — the driving forces and limiters that shape the behavior and direction of nations and their interactions. The balance between "compulsions" (what must be done) and "constraints" (what cannot be done) — a tension that induces or restricts certain behaviors, actions and directions — changes with differing "circumstances," or the current state of being domestically, regionally or internationally at a given moment in time. Thus, some compulsions may exist for years or decades, but only in a very special set of circumstances do they really induce action.

By identifying these constraints and compulsions, the limitations on options become more apparent, allowing predictions of patterns and actions. If history explains the past with an eye on the present, geopolitics explains the present with an eye on the future. The purpose is not only understanding the pressures on nations, but also predicting future responses — and thus providing time to prepare for, dissuade or counter the actions of others.

At a certain level, geopolitics eliminates the impact of the individual human element: Each individual is diluted in the totality, subsumed in some sense by the forces at work, namely, the broader constraints and compulsions that compel and limit options and decisions. Individuals by their very nature are highly variable, being affected by numerous unseen elements at any given moment.

Consider, for example, John Lewis Gaddis' musing in The Landscape of History on the potential that an unrecorded flea may have given Napoleon itchy underwear, leading to his loss at Waterloo. While individuals are relatively unpredictable on a short timeframe, their collective behavior, their decisions as they shape the directions of nations, are less variable and more compelled or constrained. Thus, in rising above the individual, geopolitics presents a framework for forecasting and a method that can be taught and tested.

The relationship between the constraints and the compulsions is in a constant state of flux and influenced by circumstances. Assessing these three factors presents a picture of fairly limited options and, in reducing possibilities, leaves a very small number of likely directions for future action. This allows geopolitics to serve as the starting point for forecasting. Frequently, however, a directional pattern that appears obvious from a geopolitical assessment and forecast will not come to pass within the expected timeframe, or a dynamic that may appear highly constrained will suddenly break forth far ahead of the forecast.

Three Case Studies

As a case in point, let's look at the current European crisis. Nearly from the beginning of our existence, Stratfor has clearly seen and identified the core constraints on European unity, and in particular on the creation of a common European currency. Our 1995-2005 Decade Forecast stated:

The European Union's enjoyment of this period will be limited somewhat by Germany's ongoing digestive problems—absorbing the old East Germany—and an inability to create a Monetary Union. On the one hand, the reluctance of major powers to abdicate sovereignty to Brussels makes negotiations difficult and subject to collapse and breakdown. On the other hand, the fact that the EU contains both net creditor and debtor nations makes the creation of a single, integrated fiscal policy—the precondition for monetary union—difficult to imagine. The idea that Greece or Portugal and Norway or the Netherlands will share fiscal strategies is a bit difficult to imagine. As the EMU frays, European integration in general will be questioned. The great reversal of 1997 will resonate through the next decade.
Our Fourth Quarter of 1998 forecast continued to expect the failure of the EMU:
We continue to believe that the EMU will be dead on arrival. The EMU is an economic colossus built on a base of political sand. Each European election now has the potential of undermining the entire edifice. Even if this German election doesn't, some election will. The EMU, like Russia and Asia, is going to meet the dark face of politics sooner rather than later. This last quarter of 1998 may destroy the EMU, postpone it, or most likely, allow it to go forward with political constraints that will guarantee its failure.
Applied geopolitics clearly showed that the EMU, and the euro, were inherently flawed. We assumed that if these flaws appeared obvious to us, they would be as obvious to the Europeans. We also believed the Europeans would be unable to bring the new currency to fruition even if they did not consciously recognize the same constraints we had identified. But not only did the euro move forward, for a time it was a very strong global currency. In our 1999 Annual Forecast, we admitted: "We were clearly wrong when we expected the euro to fail. The euro is here and seems likely to work in the short run."

Today, however, the European Union is hampered by many of the very constraints we recognized two decades ago. While an integrated fiscal policy may have worked relatively well during times of economic prosperity, in times of crisis, it stripped some countries of the tools they needed to respond — bringing increasing political strain within member countries and toward the entire European experiment. Put simply, the very different economic models of Northern and Southern Europe require more than a "one size fits all" set of economic tools.

While geopolitics exposed those constraints, we missed something in initially predicting that they would block the formation of the EMU and the euro or give rise to a monetary union so politically constrained it would be destined to fail from the outset.

The error was not one of failing to recognize constraints but rather of failing to understand how they applied and in what timeframe.

Now consider our long-standing forecast of an economic crisis in China as "the Chinese miracle" outlived its growing internal contradictions. For more than a decade, we identified the constraints that would bring an end to the miracle and lead to a political crisis as China sought to manage the social consequences of slowing growth. Many of the problems we identified are now generally accepted as obvious precursors to China's economic slowdown, which was finally set in motion by the European financial crisis. Though what is obvious now to many was obvious to us for a long time, we still failed to forecast the timing of the crisis.

The recent action by Russia in Ukraine fits a similar pattern. We identified the stresses on Russian-U.S.-European relations, the sense of unease felt by Russia at seeing its periphery eroded, and the likely locations for a Russian response to reassert its national security interests.

And yet we failed to forecast the timing of the crisis in Ukraine. In this case, it was not an issue of being too early, but rather of being too late. Though very challenging to nail down, the time factor in forecasting is critical: The best forecast with an inaccurate time component is of limited value.

In looking back at nearly two decades of inaccurate forecasts, particularly those that erred in timing, three basic factors emerge. The first is an intelligence gap, where key information needed to make an accurate forecast is either missing or has been overlooked or misinterpreted.

The second is a basic analytic failure, namely, the failure to adhere to our methodology due to complacency, allowing assumptions to become "facts." The third is something that I will call "inertia." In physics, inertia is the principle that an object moving in a particular direction will tend to continue moving in that particular direction unless acted upon by some factor or force, or that an object at rest will remain at rest unless acted upon by some factor or force. In short, objects tend to continue to do what they are doing unless something knocks them off kilter.

The Role of Inertia in Geopolitics

Applied to geopolitics and forecasting, inertia is perhaps most often seen as acting against a change in a certain direction but not fully constraining it. Inertia, then, is a key factor in understanding the time component of geopolitical forecasting. With a change in circumstances, a compulsion may require a certain new action, and a constraint may mitigate against continuing with an existing action, but inertia may significantly delay the change in action. The constraints that militated against the formation or success of the euro were real, but they were initially overcome by the institutional inertia of a Europe that had considered and launched upon a unitary path, one initially put in motion to balance German and French interests and competition and thus reduce the likelihood of another European war. And the compulsions that now would appear to lead to European re-division are being delayed by the inertia of the assertion that the European experiment should continue as is.

Inertial factors may be institutional (the structure of government, for example), fiscal (the method of budgeting and spending), societal (the nature of society and the population), or manifest in other sub-systems. Regardless, inertia must be assessed and understood to add greater time accuracy in forecasting. What geopolitics makes apparently simple and clear is made complex and muddy by inertia.

We know a large ship is hard to turn quickly and keeps moving forward long after the helm is thrown over. A ship of state is much larger, and its direction is accordingly more difficult to alter even after a crisis moment is recognized and acted upon. We also know that the economic effects of certain policies or of changing circumstances are often not fully felt until the next leadership is in place, and that the repair is often not noted until long after circumstances have improved. Inertia is the factor that shapes these delays and, as such, complicates the time factor in forecasting.

What are the inputs in measuring inertia? How is inertia different from constraints, or should it be considered among the constraints? And are inertial factors universal or situational? When we look at differing groups of peoples, different nationalities and sub-nationalities, there are often common characteristics in the ways they act and react. In some sense, there are French, American and Chinese ways of acting. Stereotypes exist for a reason: They are exaggerations of national characteristics. This is not to say that every individual is the same, or that there are no differences within cultures and nations, but rather that places exert certain forces on the development of a people over time that eventually produce common characteristics.

What has shaped the mindset of the leadership of Japan over time is far different that what has shaped the mindset of the leadership of Congo. Geography places certain constraints, encourages certain behaviors, and over time builds in a set of generally identifiable characteristics of thought and typical responses. These are, at their core, conditioned by geography, by place. In some sense, this is one step in what we refer to as "empathetic analysis," or understanding the factors that shape the outlook of the individual leaders.

Whereas geopolitics often rises above the individual, the narrower the timeframe and the more discrete the scope, the more the individual and their worldview matter.

Constraints such as political power, political checks, economic activity and natural resources may be shared by all, but they are still expressed differently in different places, and their relative significance to one another changes. Empathetic analysis, our term for the process of getting inside the thinking of geopolitical actors, tells us to look at the constraints within a particular geographical area, system and time. If constraints were common across geographic space and time, then there would be no need for empathetic analysis; applying my own paradigm would be sufficient to assess the paradigm of another. But as that is clearly not the case, then there must be something like a national characteristic, the culmination of history, culture, economic activity and societal factors in a particular geographical area shaped, guided and constrained by the realities of that geography.

If geopolitics helps reveal this national characteristic, perhaps inertia and the factors and balances to consider also have national characteristics, as well as elements unique to specific locations at specific times. The general types of inertial factors may be common across differing locations, but they exert a different balance of forces based on location.

What are the compulsory factors that direct behavior? Perhaps they are external stresses, domestic economics, politics, demographics, etc. The balance of these factors may shift with differing circumstances, one being more important at one moment, another at another moment.

What is the response time to these pressures, to these compulsions? Is it always conscious, is it at times nearly inevitable, and is the response limited by constraints? It would seem that inertia can be considered an important component that determines the delay time between stimulus and action/reaction. Inertia may be fairly elastic, exerting a slow resistance, but is by no means insurmountable, instead merely producing steady delays on the timelines of expected outcomes.

Inertia may also be fairly inelastic, exerting a strong resistance until, all at once, it is overcome in a massive breaking moment.

Understanding the inertial forces applicable in a given place and time is critical to improving forecasting accuracy because it impacts the critical time component of the forecast. Timing in forecasting is just as important as accuracy and separating the significant from the insignificant. But timing requires a more complete understanding of the balance between compulsion, constraint, circumstances and the resistant pull of inertia. Inertia exerts a strong pull on the time factor in any otherwise obvious forecast produced by the overall assessment of constraints, compulsions and circumstances. Given what we have learned over the years, inertia will be elevated as a variable in our practice. 

Gold Market Tightness Puts COMEX Clearing Members On The Edge Of Default...

by: Avery Goodman
                   


Summary
  • There is not enough registered gold to fulfill this month's COMEX delivery obligations.
  • About 375,000 registered ounces face 550,000 worth of delivery claims.
  • Few, if any, COMEX clearing members are likely to default, but increasing tightness in the physical gold market makes physical gold and gold mining companies excellent long term investments.
Theoretically, COMEX traded futures contracts are physically deliverable if the buyer waits for maturity, and stays put to collect his gold. The problem is that, if you have not deposited enough cash to take the actual gold, your position will be involuntarily sold out from under you.

The buyer must deposit the full cash value of the entire gold contract, or 100 ounces of gold, into his brokerage account. At the current price, that means depositing approximately $120,000 in your account for each contract you own.

In practice, most COMEX long investors are hedge fund managers who can and do pile up to 32 to 1 leverage in the hope of getting rich quick. They are usually gambling with other's people's money. A heavily leveraged COMEX trader, therefore, can control 100 troy ounces of gold in exchange for a mere $3,750 of US dollar cash. Nowadays, about 2% of the maximum number long buyers actually stay on long enough to take physical delivery. The number of ounces delivered every two months hasn't changed a great deal.

To keep COMEX the single most important gold price setting mechanism in the world, the exchange maintains a fiction that all its futures contracts are potentially "deliverable". That, of course, is nothing but smoke and mirrors. The fiction is maintained by the fact that buyers are mostly gamblers, who don't have the money to buy the gold. Similarly, sellers don't have the actual gold to sell. If a large group of real buyers ever tried to force deliveries from COMEX, the exchange would be forced into cash settlement.

To maintain the fiction of deliverability, various warehouses are licensed to store so-called "good delivery" gold bars. These bars are often referred to as COMEX "inventory". "Good delivery" means that the bars were manufactured by a recognized refiner, are assayed to 99.5% pure gold, and are either 100 ounces or 1 kilo each. A full contract delivery can be made by delivering either a 100 ounce bar of gold or three bars weighing one kilo each.

Good delivery gold is divided into two categories, "eligible" and "registered". Most gold bars in the warehouses are "eligible" because they have all the necessary prerequisites to meet the "good delivery" standard, but are not registered. Their owners don't want to sell them and that is why they are not registered. "Registered" gold are bars that have been earmarked for use by the exchange clearing members to meet delivery requirements.

The following spreadsheet illustrates the current stockpile situation at the COMEX licensed warehouses, as of May 29, 2015.

(click to enlarge)

COMEX gold futures contract mature on the last day prior to the 1st business day of their designation month. Thus, the June gold futures matured on May 29th, 2015 because it was the last working day of May. About 5,500 long contracts remain outstanding, out of an original total that reached its top at more than two hundred thousand.

To "stand" for delivery, the buyers of those contracts needed to fill their brokerage accounts with enough cash to pay for the entire cost of the gold. About 550,000 troy ounces of gold must be delivered for the June contract. This is not an unusually large amount of gold. About 5,400 contracts stood for delivery on March 31st, the maturity date of the April futures contract. What is different is that COMEX warehouses are only storing 370,452 troy ounces of registered gold. For the first time I can remember, COMEX has a net shortfall of about 170,000 ounces or 5.29 tons. That is a lot of gold.

While it is possible that a situation like this has happened before, I cannot remember it. There simply isn't enough registered gold at COMEX to meet the delivery demand. That does not necessarily mean there will be a major default. COMEX clearing members can and do get gold in many other ways, outside the exchange. Even in normal months, sources outside the exchange are used to meet delivery requirements. A high degree of leverage facilitates moving paper prices up and down without much risk. Some believe that an intentional effort is made, in the early days of every delivery month, to artificially reduce world gold prices so that the dealers can buy deliverable gold on the cheap.

Mining companies and most others generally accept COMEX-derived prices as the "official" world gold price, even though the price reflects mostly gambling, rather than supply and demand. Even when supplies of real gold are tight, miners and refiners almost always sell production at something very close to the COMEX price. Paper market imaginary gold, therefore, is able to change the price of real gold.

In this situation, however, no one can guess exactly what happens next. However, it seems to me that COMEX clearing members will manage to scrape up enough gold to make this month's delivery.

That's because a widespread default by a large number of COMEX clearing members would cause the exchange to lose its status as the world's most important price setting forum. A big default would also send gold prices suddenly soaring, putting hundreds of billions of dollars worth of off-exchange derivatives at risk of imploding.

The first place clearing members will go to source new gold bars is the London commercial market, otherwise known as the LBMA. This was formerly the biggest physical gold market organization in the world, and may still be. But, London based traders warn that it has become increasingly illiquid. Volume and trading of real gold has moved east to the Shanghai Gold Exchange in China. Chinese law forbids the export of gold bars, so there can be no help from there.

A best bet may end up being the US Treasury and/or the Bank of England. If conspiracy theorists, like those at GATA, are correct (and I think they are), the worst case scenario would be a stealth government bailout. It is relatively easy to set up "location swaps", where gold bars owned by the government are promised in exchange for gold bars in the eligible bar category at COMEX warehouses. People could be persuaded to put their physical gold into play, in the registered category, if a government guaranty on return of the actual gold, along with a thick "envelope" of Benjamin Franklins, is thrown in as a sweetener.

A government bailout would put US gold reserves at risk. However, the possibility that the gold will never be repaid hasn't stopped the government in the past. In 2009, writing on behalf of the FOMC, Fed governor, Kevin Warsh, admitted that the Federal Reserve's gold is subject to swap liens. J. Virgil Mattingly, the Fed's highest ranking lawyer during the 1990s, had admitted it in recorded minutes of an FOMC meeting, all the way back in January 1995.

However, by 2001, he was busy denying it, claiming he had never said that. Confirmation by Kevin Warsh, therefore, was very important. Knowledge that US gold has already been made subject to swap liens helps us understand what happens, behind the scenes, in the gold market.

The Fed directly controls only the gold in its basement vault underneath NY Fed at 33 Liberty Street. Ninety five percent of that, however, is owned by foreign nations. Hopefully, swap liens haven't been placed against that gold without consent of the nations involved. But, although the US gold reserve is still managed by the Treasury, all American gold was legally transferred to the Federal Reserve years ago, in the form of "gold certificates". The swapped gold, therefore, must be a part of the US gold reserve. It may not have been physically removed yet, from Fort Knox, but gold there and/or at other official repositories is encumbered by the claims of third parties.

In fact, by 2007 so many bars of gold had apparently been "swapped" that the US Treasury changed its description of the US gold reserve, for accounting purposes. The entry was altered.

The asset was once described as simply "gold bullion". But, then, it was changed to "gold bullion, including gold deposits and, if appropriate, gold swapped". Thus, it is abundantly clear that the US gold reserve is already encumbered. In light of that fact, why not swap out a few more bars? If it means saving COMEX, it seems a given that the government will bail out the short-selling clearing brokers, if necessary.

On the other hand, a COMEX bailout may no longer be in America's best interest. It also might not be in the best interest of the big banks. Most of them are also big clearing brokers at COMEX. But, the hot money hedge funds are the ones who have been doing most of the short-selling lately. Many of these use smaller clearing brokers, rather than entities like Goldman Sachs and JP Morgan. The big banks may be net long COMEX gold by now. Yet, a sudden big rise in gold prices could weigh on hidden OTC derivative obligations we can know nothing about. Thus, a COMEX default might or might not be in the interest of the big banks.

If you are a believer in Keynesian economics, a large scale COMEX gold default might seem like good medicine for the US economy. Given the ongoing fear that the Euro will collapse, the US dollar has been soaring lately, in spite of a very weak US economy. Downward dollar pressure from a big COMEX gold default could be a welcome event. The dollar would take a downward hit, helping US products become cheaper in world markets. The resulting inflation may be exactly what the statists say we need. A COMEX default might provide a more powerful way to inflate the nation out of its unsustainable debt load, than QE money printing.

At any rate, regardless of this month's unusual gold deficiency, I do not believe that there will be a big default at COMEX. If you are an institution, a government or anyone else seeking a large quantity of physical gold, buying at COMEX is probably still a safe bet. You could buy COMEX June futures and take delivery this month. The worst that could probably happen is you get your cash back before the end of the month, in addition to a premium. More likely, however, you'll get your promised gold bars. The dealers may find enough gold on their own to complete deliveries. If not, they will probably get a government bailout.

The main point you should take back with you, however, is that real world gold supplies are increasingly tight. This is in spite of what appears to be lackluster paper prices at COMEX and other paper-based markets. The situation at COMEX shows that those who own real physical gold are not inclined to part with it. That's why there is so little gold in the COMEX registered category. The liquidity problem in London has spread to New York.

A situation like this cannot go on forever. The paper price of gold must be allowed to rise significantly. If not, there will be more and bigger supply problems in New York and London.

The current market tightness would get much worse. That means that the price of physical gold must eventually break strongly upward. The yellow stuff itself, and the companies that produce it are now very good long-term investment opportunities.

Get Your Ass out of the Basement and Find a Job!

Tony Sagami

June 2, 2015

 
 
It made me laugh.
 
One of my sons brought me to Bring Your Father to School Day when he was in kindergarten. Each child took turns introducing their father and explaining what he did for a living.
 

“My dad makes houses.”
 

“My dad drives a truck.”
 

“My dad cooks food.”
 

When my son introduced me, he said, “My dad looks at a computer.”
 

My son wasn’t far from being right. If you’re like me, you spend a lot of time reading; reading about the economy and the markets.
 

I spend three to four hours a day reading, and in addition to all the major financial publications like the Wall Street Journal and Financial Times, there are a couple dozen e-letters I read more faithfully than my parents did the Bible.
 

One of my absolute favorites is written by David Hay of Evergreen Capital Management in Bellevue, Washington. If you like John Mauldin’s Thoughts From The Frontline, you will love Hay’s Evergreen Virtual Advisor, which is free and is published once a week.
 

Above is a chart (one of many) from Hay’s most recent e-letter. It really hit home with me because I have three children in their 20s. They’re all currently in college, but the job situation for young adults is so bleak that a growing number of them have moved back home into mom and dad’s basement.
 
My daughter, Keiko, interning at Root Sports.


All these “boomerang” kids speak volumes about the current job market and the (deteriorating) state of the economy.
 
Don’t let the improving jobs numbers fool you. The April unemployment rate dropped to 5.4% from 5.5% in March, the lowest rate since May 2008. However, the jobs situation for 18- to 29-year-olds is awful.
 
Generation Opportunity, a non-partisan youth advocacy organization, reported that while the official unemployment rate for 18- to 29-year-olds is 7.9%, it’s actually 13.8% if you include those who have given up looking for work.
 
Generation Opportunity estimates that an additional 1.8 million young adults should be counted as unemployed by the Department of Labor because they are not in the labor force.
 
Not only are young adults not finding jobs, millions of them are saddled with huge student loan debts. According to the Center for American Progress, over 40 million Americans have student loan debt totaling $1.3 trillion, with the average loan balance around $27,000.
 


Student loans are a serious problem, but Americans of all ages are taking on more car and credit debt than ever.
 
High unemployment and high debt are a toxic combination, so you don’t have to look too far to understand why retail sales—despite the substantial drop in gas prices—are slumping.

 
The Commerce Department reported that retail sales—excluding automobiles, gas, and food—were also unchanged in April, well below the 0.5% increase that Wall Street was expecting.
 
Some of the hardest-hit retailers are those that cater to the basement-dwelling 18- to 29-year-olds. In the last two weeks…
  • Buckle Inc., a young-adult clothing chain, reported lower-than-expected sales and profits.
  • Urban Outfitters reported weaker-than-expected same-store sales and profits.
  • Kate Spade, my daughter’s favorite fashion designer, reported a $55 million quarterly loss!
Perhaps the biggest retail warning sign of all came from Walmart.
 
Walmart is struggling with several problems beyond cash-strapped millennials—such as the strong dollar, employee wage increases, consumer wallet tightening, and surprising weakness in its e-commerce business—but it is definitely struggling.
 
 
 
On a year-over-year basis, quarterly revenue fell to $114.83 billion from $114.96 billion and shy of consensus forecasts of $116.3 billion. This isn’t a one-quarter slip either. Other than in Q3 of 2014, Walmart has reported eight out of nine quarters of shrinking sales.
 

Walmart isn’t very optimistic about the current quarter either; management now expects to earn $1.06-$1.18 per share, largely below the average analyst estimate of $1.17.
 

So what does this mean for us?
 

The US is certainly a consumer-driven economy, and the consumer is looking pretty sickly to me.
 
Remember the horrible GDP numbers from the first quarter? There’s more where that came from.
 

Do you own any retail stocks? If yes, you better take a very critical look at them and evaluate how sensitive they are to the economic cycle. At a minimum, I highly recommend the use of protective stops to protect yourself from big drops.
 

Another way to hedge your bets is to look away from the US and into China, where a pending “October Surprise” promises to take yuan-denominated assets to the moon.
 

In any case, if you’re an empty-nester, maybe you should tidy up your basement. You may have some long-term guests moving in son.

The FIFA Syndrome

Lucy P. Marcus

MAY 28, 2015



LONDON – The arrest of FIFA executives on a raft of fraud and corruption charges has been front-page news in recent days. But the charges brought by the Swiss and American authorities focus on bribery and embezzlement, and do not address another egregious injustice: the treatment of the migrant workers in Qatar who are building the stadiums for the 2022 FIFA Football World Cup.

 
Amnesty International recently released a report on the abysmal conditions in Qatar. The workers are subject to unsafe construction sites, exploitative recruitment agencies, and little recourse to formal justice. Recently, Nepal’s labor minister publicly spoke out about the government of Qatar not allowing his country’s migrant workers to return home to mourn relatives who died in the April 2015 earthquake.
 
As Amnesty International notes, the responsibility lies primarily with the Qatari authorities.

But FIFA had – and still has – a responsibility to act. There have also been calls for sponsors, including McDonalds, Visa, Coca-Cola, Adidas, Budweiser, Gazprom, KIA, and Hyundai, to place pressure on FIFA and Qatar to improve working conditions.
 
Such issues have arisen in recent years in other sectors as well. In April, Human Rights Watch issued a report on the treatment of garment workers in Bangladesh. The report, prompted by the 2013 Rana Plaza collapse, in which more than 1,100 people died and over 2,000 were injured, highlighted poor working conditions, inadequate building inspections, weak labor laws, and the need for fairer wage practices and legal benefits.
 
Beyond these examples, there have been many others. In technology, Apple and Foxconn have faced criticism for working conditions at their Chinese production sites. Even educational institutions, such as New York University’s new campus in Abu Dhabi, have been tainted by episodes of workplace exploitation and abuse.
 
These are not isolated cases. For every disaster and high-profile case that hits the headlines, there are many more that we never hear about.
 
Nonetheless, one hopes that the treatment of those who make the goods, produce the services, and build the things that make us happy and productive – from clothing and technology to sports stadiums and college campuses – continues to come under scrutiny. Globalization should force managers – and all of us – to do some serious thinking about labor practices around the world.
 
Here is where it gets complicated. What counts as a company’s workforce? Are “its” workers only those people on its own payroll? Are companies responsible for their products’ entire supply chains?
 
To what extent can – and should – a company be held to account for the choices of those who may be several links removed? When a serious issue has been brought to a company’s attention, are its managers obliged to address it, even if it involves the subcontractor of a subcontractor?
 
The larger and more complex the company, the harder it is to track all of the firms with which it does business, the firms that they then subcontract to, and so on. Companies, not surprisingly, say that their responsibility extends only so far. But that is not an answer; it is a choice. Organizations can decide to extend their reach. They can even decide that they want to know the full provenance of all materials and components in their products, and that they will hold their extended suppliers to account.
 
In this sense, the larger the company, the greater its responsibility. But larger companies also have a larger ability to become a force for good, both locally and globally. If a company the size of US retailer Walmart decides that it will not allow wasteful packaging, its purchasing power will lead to changes in packaging for the entire retail sector. The same is true of wages and labor practices.
 
When the world’s biggest companies and most well recognized brands take seriously their responsibility as buyers, sellers, and manufacturers and make a firm commitment to act on core values, others tend to follow – or risk being left behind. Those that operate in an ethical manner and seek to improve the lives of all who are associated with the manufacture, marketing, and distribution of their products will benefit from kudos, more business, or simply not being singled out as a bad actor.
 
By contrast, companies whose managers believe that a competitive marketplace is no place for ethical behavior will suffer if and when consumers take their business elsewhere; government regulation and fines force them to act; or they become unable to attract an educated and ever-more discerning workforce. All of it – the constant scrutiny, the bad press, the tarnished reputation – will hit their long-term stock prices.
 
Much the same is true for organizations like FIFA. When sponsors like Coca-Cola or Adidas believe that their reputations will be tarnished by association with an organization engaged in corrupt practices, they will take their brand-management dollars elsewhere.
 
Companies are made up of people. Paying fair wages, adopting ethical sourcing practices, and upholding the dignity of workers should be a part of the way they calculate their success. Those who disconnect themselves from the fate of others, who act without conscience or a sense of right and wrong, and who spurn ordinary human decency have no place running organizations or sitting on company boards. The things that make us happy must not come at an unforgivably high price.
 
 
 

Gold Looks Awful - In 2015 That Means Buy

by: Andrew Hecht            
             

Summary
  • A test of the highs failed.
  • Now we drift to the lows.
  • Why the lows will fail too.
  • What will move gold at this point?
  • Divergences are the best clue - is that enough?
Gold is the ultimate store of value in the world for thousands of years. Since the first caveman noticed the lustrous metal, it has captured the attention of humans. Gold is the ultimate currency; it has outlived every other means of exchange throughout history. The value of gold these days is transparent; the last trade establishes the price. That is why the current price is always the right price.

While gold is always in fashion, its value moves with sentiment.

As with many assets, fear and greed often dictates price. Gold had a fantastic rally beginning in 2001, which took the price of the yellow metal from $255 all the way up to $1920.70 per ounce a decade later in 2011. Since then the price of gold have been grinding lower, settling on Friday, May 29 at $1189.80 on the active month COMEX August futures contract. Gold has been in a trading range since March, a recent rally breached upside resistance and vaulted it up to $1232.80 but gold failed to hold that level and moved lower.

A test of the highs failed

The recent failure of gold was significant. In many ways, it frustrated potential buyers and emboldened sellers.

(click to enlarge)


As the daily chart of COMEX August gold futures highlights, support for gold now is at the March 17, 2015 lows of $1143.80 per ounce. While the slow stochastic, a momentum indicator remains positive, it is in overbought territory. Historical volatility in gold has dropped as the market has been trading in a tight range. With volatility down to the 10% level, gold is trading more like a currency than a commodity these days.

Therefore, gold is likely to take directional clues from another currency that has been dictating direction for many markets, the U.S. dollar. The dollar recently held lows and has moved higher, this is not a positive development for the price of the yellow metal. While the relative strength index in gold is neutral, open interest and volume in gold has dropped since it could not sustain the $1230 level. Open interest, the total number of long and short positions on COMEX gold futures, has moved from 430,674 on May 18 to 398,554 contracts on May 29 -- a decrease of 7.5% while the yellow metal itself only declined by 3.5% over the same period.

The decrease in volume and open interest as gold prices dropped is not inherently bearish on a technical basis however; it does indicate that interest in the gold market is waning. The drop in historical volatility tells me that the fear factor in gold is gone today and that could mean gold is heading to test support.

Now we drift to the lows

We tried the highs in gold on May 18; the failure could mean that the yellow metal now needs to test the low end of the range at just over the $1140 level. With the close at the end of May, gold is now stands in the middle of the trading range. Unless the fear factor returns to the yellow metal, a test of the low end of the range seems inevitable. However, given recent trading action in the yellow metal do not expect too much from gold on the downside.

Why the lows will fail too

The highs in gold failed, and chances are so will the lows. You can be sure that as gold approaches the $1140 level, the bears will come out of the woodwork with a myriad of reasons why gold is nothing more than a barbarous relic of years gone by. They will be calling for prices to plunge to $1000 or below. The bulls will retreat, however if we have learned anything yet from trading action in markets in 2015 we know that it is a year for trading rather than for trends. That is why the high-odds play in gold is a failure to break down when support is tested.

Although the fear factor is out of gold along with participant interest for now after the recent upside failure, the world remains a dangerous and unstable place. An event could cause a flight to quality in a heartbeat given the current global landscape. Additionally, over the long-run cheap and artificially low interest rates around the world in order to stimulate economies has a price. The price will be inflation and whether it rears its ugly head in a few months or a few years gold, the ultimate store of value, will quickly adjust its price to an inflationary environment. In the short-term, issues around the world could ignite the price of gold in the blink of an eye.

What will move gold at this point?

So many issues could move the price of the yellow metal at this point. The never-ending saga of turmoil in the Middle East always provides the potential for a rally in gold. Intransigence and aggressive actions by the Russian leader, Mr. Putin, could bring the fear factor back to markets. In Asia, the aggressive posture of China with regard to sovereignty issues in the South China Sea and relations with Japan and the United States is a potential catalyst for gold. Not to mention the nuclear program of North Korea and their continued prodding of perceived enemies, South Korea, Japan and the U.S. could increase world tension and the price of gold.

At this time, as we move into the summer vacation season, it seems that only a real shock would bring investment demand back to the gold market. Investment demand and the perception of fear is a make or break factor for the yellow metal.

Divergences are the best clue - is that enough?

While gold remains in a trading range, divergences provide some clues as to the future price direction of the precious metal. Prices for industrial precious metals continue to be under pressure. At the end of May, both the platinum-gold spread and the silver-gold ratio continue to diverge from normal historical levels.

On a long-term basis, platinum should trade at a premium to the price of gold. Platinum is rarer, there is only around 250 tons of production each year. Annual gold output is around 2,800 tons. There are many more aboveground stockpiles of gold than platinum. The production cost for platinum is higher. Platinum production primarily emanates from two countries, South Africa and Russia while gold production is ubiquitous.

On an ounce-produced basis, there are far more industrial applications for platinum than for gold. On a multi-decade basis, platinum has traded at an average of a $200 premium to the price of gold. In 2008, that premium peaked at over $1200 while in the aftermath of the global financial meltdown platinum fell to a $200 discount to gold. At end of May, platinum stood at $78 below the price of gold. Given the fundamentals for platinum, the downside is limited and upside is explosive once the global economic landscape improves.

The silver-gold ratio closed May at the 71.2:1 level. This relationship has a long-term average level of 55:1. On a historical basis, gold has outperformed silver recently but over many decades, this price relationship tends to return to long-term historical levels. When it comes to both the platinum-gold spread and silver-gold ratio; both say that either the industrial precious metals are too cheap at current levels or gold is too expensive on a historical basis. Given recent action in the gold market, I continue to believe that gold is too expensive relative to these two other precious metals.

Gold looks awful after failing on the upside on May 18. Divergences between gold and other precious metal prices portend lower prices for the yellow metal based on historical norms.

However, 2015 has been a year for trading rather than for long-term trends in many markets.

While I believe that gold will eventually move lower, for the coming weeks it is likely to stay within the current trading range. When gold looked great two weeks ago, the right trade was to fade the rally and sell. It is likely that when the price inevitably trades down to support and looks really ugly it will hold.

For now, look at gold as a trading instrument rather than looking for a big trend to emerge.

Buying dips and selling rallies could be the only profitable trading strategy in gold until some exogenous shock moves the market out of the current trading range. Therefore, this year when gold looks awful, bite your lip and buy.

Margin Debt At Record Highs
             

 
Today's chart of the day in investor sentiment and positioning we get by looking at the NY Stock Exchange Margin Debt. A recent report by the NYSE showed that margin debt increased by a staggering 6.5% in just one month (April). This is one of the biggest monthly increases and now pushes margin debt levels to above $500 billion.
 
Relative to GDP, margin debt speculation now accounts for 2.8% of the US economy, which is the same level it stood in March 2000 - just before the Tech bubble burst. You've been warned!


Chart Of The Day: NY stock exchange margin debt rises to record highs!
(click to enlarge)
Source: Short Side of Long

Health Journal

Your Body’s Witching Hours

Circadian rhythms help determine when we are most vulnerable to disease

By Melinda Beck

Updated June 2, 2015 11:03 a.m. ET


Heart attacks often occur in the morning. Epileptic seizures peak in the late afternoon. Asthma attacks get worse and more deadly between 11 p.m. and 3 a.m.

Researchers are finding that circadian rhythms, which cycle every 24 hours or so, drive virtually every system in the human body, from circulation and cognition to metabolism, memory and mood. And they play a big role in determining when we are most vulnerable to disease.

Chronobiology—the study of these internal clock mechanisms—has exploded in recent years thanks in part to the discovery of specific genes, to which scientists have given names like Clock, Period and Cryptochrome. Those genes help keep our biological systems in sync with light and darkness, which makes for a rush hour of chemical changes at dawn and dusk.

Understanding biorhythms is helping doctors direct treatments, including the best times to take various medications. It is also suggesting new treatment strategies, such as adjusting the light in nursing homes to help people sleep better.

Of course, people often disrupt their circadian cycles with jet travel, erratic work schedules, watching TV and Web surfing long into the night. That can raise the risk for a variety of health problems, including heart disease and diabetes.

The body’s master time keeper is a group of neurons in the hypothalamus, located behind the eyes, called the suprachiasmatic nucleus, or SCN. In darkness, the SCN prompts the pineal gland to release melatonin, the hormone that facilitates sleep. Other chemical changes reduce body temperature, blood pressure and heart rate, all of which are at their lowest overnight.


To enlarge graph click here


Other systems are highly active at night. Stomach-acid production peaks between 10 p.m. and 2 a.m., digesting the evening meal and possibly exacerbating heartburn. The liver dumps glucose into the bloodstream just before dawn. Leptin, a hormone that damps appetite, is high, so people tend to be least hungry when they wake up. And the immune system may be overactive, inflaming airways in asthma sufferers and swelling arthritic joints.

In the morning, light on the retinas signals the SCN to shut off melatonin. Cortisol, a stress hormone, rises instead, preparing the body for the day’s demands. Blood pressure and heart rate start increasing. A substance called PAI-1, which makes blood clot more readily, peaks around 6:30 a.m. Experts think PAI-1 may have protected early humans from bleeding to death from an injury as they set off foraging for food. But in modern humans with plaque-lined arteries, the substance raises the risk of blockages that cause heart attacks and strokes. Those peak around 9 a.m., studies show.

Exposure to bright light at a time the body isn’t used to can advance or delay the circadian cycle. But that doesn’t happen right away, as jet-lag sufferers know. An earlier study that lasted 11 years found that heart attacks among vacationers in Hawaii corresponded more closely to early morning back home than they did to local time.

Eating, sleeping and other behavioral patterns, of course, also affect the body’s daily changes. But various biological systems, including blood pressure, heart rate, blood clotting and adrenaline, rise and fall in circadian rhythms of their own, according to research at the Medical Chronobiology Program at Brigham and Women’s Hospital in Boston and at other centers. If those behavioral patterns and circadian rhythms get out of sync, a variety of health problems can result, as researchers have shown in experiments with lab animals and observed in humans.

For example, when rodents are fed during their usual sleep time, their liver and pancreas adjust to that feeding schedule but their SCN master clock doesn’t. Even if the amount of food is the same, they will gain more weight and fat than rodents fed at the normal time, says Frank Scheer, the chronobiology program’s director.

To enlarge graph click here


Shift workers—who make up about 10% of the U.S. workforce—are vulnerable to similar problems when they eat, sleep and work out of sync with their circadian rhythms. Many have higher rates of heart disease, diabetes, obesity, high blood pressure, stroke and other disorders.

Millions of other people develop what experts call “social jet lag” by staying up late and sleeping late a few days each week. “If you do that Friday, Saturday and Sunday, then by Monday morning, when you have to go to work, you are waking up at a much earlier circadian time, which can have consequences for days to come,” says Dr. Scheer. Even the one-hour shift that occurs with setting clocks forward in the spring raises the rate of heart attacks for a week, studies show.

Surveys of tens of thousands of adults by the University of Munich’s Institute of Medical Psychology have found that the greater the difference between sleep time on weekdays and weekends, the more likely people are to be obese.

Many people with depression, bipolar disorder and other mental-health issues have disrupted circadian rhythms and erratic sleep patterns. Patients with bipolar disorder tend to have cycles that are longer than 24 hours, says psychiatrist Michael McCarthy, a member of the University of California, San Diego’s Center for Circadian Biology. There is growing evidence that these problems may be related to defects in clock genes.

Sleep cycles become earlier, shorter and more fragmented as people age. “The studies all show that having disrupted circadian rhythms puts older people at greater risk for cognitive impairment, depression and mortality,” says Sonia Ancoli-Israel, a professor emeritus of psychiatry at the UCSD center.

Such issues are even more pronounced in people with Alzheimer’s disease, whose sleep, core temperature and other biorhythms don’t follow predictable patterns. The increased restlessness, irritability and confusion known as “sundowning” that some Alzheimer’s patients experience in late afternoon isn’t well understood. Another mystery is the so-called witching hour surge in crankiness that babies often demonstrate at the end of the day.

“At the extremes of life, in babies where the brain hasn’t fully developed or in dementia patients, when you are getting degeneration, the time connections in the brain may not be fully coordinated,” Dr. McCarthy suggests. “And fatigue makes everything worse.”

Researchers are starting to develop treatment strategies to take advantage of circadian rhythms or restore them when they are out of sync—a field called chronotherapy.

“It’s a very promising area but the field is very young. More clinical trials need to be done,” says Steven Shea, a professor of public health and preventive medicine at Oregon Health and Science University.

Taking medications at night that help prevent heart blockages, such as long-acting beta-blockers and ACE inhibitors, may lower the risk of early morning heart attacks, experts say. Taking acid-blocking drugs at night might be more effective, given the overnight surge of stomach acid.

Light therapy has been shown to be effective at improving sleep among older people in nursing homes, according to several randomized, controlled trials. “Many older adults are not getting sufficient sunlight,” says Dr. Ancoli-Israel, of UCSD. She says nursing-home patients typically get only a few minutes of bright sunlight a day.

Administering melatonin to aid sleep also has been studied, but with mixed results. And melatonin can worsen glucose tolerance, so it isn’t useful for everybody.

In general, experts say going to bed, getting up and eating meals at the same time every day, getting lots of light in the morning and avoiding it at night can go a long way to improve health and mood.

“It’s the same advice we’ve always given,” says Dr. McCarthy. “But now we understand a lot more about why that’s true.”