Majority Mad as Hell

Doug Nolan

“In this unique exploration of the role of risk in our society, Peter Bernstein argues that the notion of bringing risk under control is one of the central ideas that distinguishes modern times from the distant past. Against the Gods chronicles the remarkable intellectual adventure that liberated humanity from oracles and soothsayers by means of the powerful tools of risk management that are available to us today.”

I found myself this week thinking deeply about the now classic (1998) “Against the Gods: The Remarkable Story of Risk.” The notion that new sophisticated approaches to risk management had diminished overall system risk was integral to the 1990’s U.S. boom period. Repeated policymaker resuscitation ensured that over time this already phenomenal Bubble morphed into a global Bubble of epic proportions. And right up until the Lehman Brothers collapse the consensus view held that policymakers had things well under control. Recall that the VIX sank just weeks prior to the so-called “worst financial crisis since the Great Depression.”

It’s no coincidence that near systemic financial collapse was preceded by near manic devotion to the wonders of contemporary risk management. Today, I see parallels between the Lehman failure and the UK people’s decision to leave the European Union. Until the Lehman collapse, the strong consensus view held firm that policymakers would not tolerate financial crisis or severe economic downturn. By late in the cycle, this momentous market misperception had been embedded in prices for Trillions of securities, certainly including MBS, ABS and GSE debt. Importantly, as excesses turned increasingly outrageous (i.e. 2006’s $1TN of subprime CDOs) unwavering faith in the power of policy measures ensured ongoing rapid Credit expansion.

Moreover, unabated Credit growth (and attendant economic expansion and asset inflation) coupled with confidence in policymaker control ensured that inexpensive market risk “insurance” remained readily available. Going back to my initial CBBs, I took exception to the powerful interplay of securities-based finance, “activist” monetary management and booming derivatives and market risk “insurance.” The Fed’s interest-rate and liquidity backstops underpinned securities-based finance, ensuring resilient markets and economies. This safeguarded the supply of cheap market risk “insurance” – protection that was fundamental to ongoing risk-taking throughout the markets and real economy.

An increasingly systemic Bubble was built on an unsound foundation of misperceptions, including confidence that policy measures were readily available to ameliorate financial and economic instability. Panic ensued when the Lehman collapse illuminated the reality that there were powerful forces operating outside of policymaker command and control.

At the time, I believed that the 2008 crisis marked a momentous inflection point for “contemporary finance.” Serious flaws and misperceptions having been fully exposed, I expected a fundamental re-pricing of risk throughout the markets. I thought the days of cheap risk “insurance” were over. Going forward, if market participants desired to reduce risk they would have to liquidate holdings. And considering all the associated havoc, I expected the Federal Reserve and other regulators to adopt an aggressive oversight approach to derivatives generally.

The Bernanke Fed instead pulled out all stops to resuscitate “contemporary finance.” Zero rates and Trillions of QE were adopted with the specific objective of spurring financial market inflation. Indeed, rising securities market prices became the centerpiece of extraordinary measures to reflate the U.S. (and global) economy. Over time it became a case of “whatever it takes” to overcome bouts of market instability and sustain an increasingly unwieldy global Bubble.

Risk premiums and pricing for market “insurance” collapsed. Instead of lingering fear from the near-catastrophic 2008/2009 experience, greed reemerged more emboldened then ever. Clearly, it was assumed, policymakers learned from 2008 and would not tolerate another crisis. Especially after 2012, “Whatever it takes” on a global basis ensured policymakers had the capacity to control developments like never before. “Risk on” finale.

Markets were obviously over-confident going to Thursday’s UK referendum. It’s all understandable. As booming securities markets over the years turned increasingly powerful and dominating, markets held sway over central bankers, politicians and electorates alike.

Who’s been willing to mess with bull markets and economic recovery? Of course, the average Brit was disgusted with so many aspects of European integration. But once in the voting booth they certainly wouldn’t risk a faltering currency, sinking stock market and attendant economic uncertainty. That would be nuts. Markets – including risk insurance – were priced as if it was largely business as usual: markets dictating government policies, while central bank measures dictate the markets. Yet for voters it was anything but business as usual. For the Majority, Mad as Hell…

(Inflationist) Theory held that central banks could effortlessly print “money” that would inflate both the markets and the general price level. Such a reflation would help grow out of previous debt problems, while spurring wealth creation and renewed prosperity. Yet predictable consequences include latent financial fragilities, economic maladjustment and destabilizing wealth redistributions and disparities. Responding to obvious shortcomings, central bankers were compelled to only ratchet up monetary inflation. The past few years of “whatever it takes” have been reckless, and it’s coming home to roost. It’s increasingly apparent that popular discontent has reached critical mass, and critical development are not under central bank control.

Sure, central bankers are as committed as ever to crisis management. Global liquidity swap lines will be wide open. There will market interventions and ongoing liquidity backstops. More QE is on the horizon. But the process has turned dysfunctional and the consequences of aggressive monetary inflation extraordinarily unpredictable. Economies have fragmented.

Markets have fragmented. Societies have fragmented. Political unions are fragmenting. It’s that old dilemma that central bankers can create liquidity but it’s difficult – these days impossible? - to dictate where the “money” flows in such a fragmented world.

It’s a popular argument that banks are healthier (better capitalized) these days than back in 2008. As I’ve chronicled for awhile now, global stock prices support the view that banks today confront extraordinary risks. I would add that I believe global securities market vulnerabilities greatly exceed those of 2008. A hedge fund industry and ETF complex that have each swelled to $3.0 TN are on the list of market risks that have inflated significantly since 2008. From a more real economy perspective, risks unfolding in Europe, China, Asia and EM, more generally, greatly exceed those from 2008. Actually, one has to be a real optimist to see a bright future for European, Asian or EM banking systems.

Brexit comes at a terrible time for European banks and Europe’s securities markets more generally. To be sure, Friday trading put an exclamation mark on what was already bear market trading action. European bank stocks were down 14.5% Friday, increasing y-t-d losses to a nauseating 29%. UK banks were under intense selling pressure. Royal Bank of Scotland sank 27% in Friday’s chaotic session, while Barclays and Lloyds fell 20% and 23%. Elsewhere, Credit Suisse sank 16% during the session, with Deutsche Bank down 17% (down 35% y-t-d). Friday trading also saw Banco Santander fall 20%.

UK stocks opened Friday down about 8% but closed the session with losses of 3.2%. Spanish stocks sank 12.4% in wild trading, increasing y-t-d losses to 18.4%. Stocks in France sank 8.0%, pushing 2016 losses to 11.4%. Friday trading saw equities sink 5.7% in the Netherlands, 6.4% in Belgium%, 7.0% in Portugal, 13.4% in Greece and 7.0% in Austria.

Recalling the tumultuous 2011/12 period, Italy is again becoming a market concern. Ominously, Italian bank stocks sank 22.1% Friday, a crash that pushed 2016 declines to 52%. Friday trading saw the Italian stock market (MIB) sink 14.5%, increasing y-t-d declines to 34%. And with Italian 10-year bond yields up seven bps to a four-month high 1.62%, the spread to bund yields surged 14 bps this week to a two-year high 167 bps.

European periphery spreads widened significantly Friday. Spanish 10-year bond spreads (to bunds) widened 30 bps Friday to a one-year high, with Italian spreads 29 bps wider. Portuguese spreads widened 39 bps and Greek spreads surged 91 bps.

Panic buying saw 10-year U.S. Treasury yields drop 19 bps Friday to 1.56%, the “largest single-day drop in 5½ years.” UK yields sank 29 bps to a record low 1.08%. German yields dropped another 14 bps Friday to a record low negative 0.05%. Swiss bond yields fell 13 bps to a record low negative 0.56%. After trading almost $100 higher overnight, bullion finished Friday’s session up $59 (4.7%).

In Asia, the Japanese equities bear market gathered further momentum. With Friday losses of almost 8.0%, Japan’s Nikkei 225 sank another 4.2% this week to an eight-month low (increasing y-t-d losses to 21.4%). Japanese banks (TOPIX) were clobbered 8.0% during Friday’s session, boosting 2016 losses to 37%. The Shanghai Composite’s 1.1% decline increased y-t-d losses to 19.4%.

US stocks this week again outperformed most developed markets. The S&P500’s 3.6% Friday drop put the week’s decline at 1.6%. Not so bullishly, Friday trading saw the banks (BKX) drop 7.3% (down 13.1%) and the broker/dealers (XBD) sink 7.9% (down 16%).

Currency trading has turned wildly unstable. Friday trading saw the Swedish krona drop 3.7% versus the dollar. Norway and Demark saw their currencies lose more than 2%, though these were modest declines compared to some key Eastern European EM currencies. Poland’s zloty sank 4.3% Friday, the Hungarian forint fell 3.5% and Czech koruna declined 2.4%. Friday trading saw the South African rand sink 4.6%. The Russian ruble fell 2.3% and the Turkish lira dropped 2.6%. Unsettled Friday action saw the Mexican peso trade to a record low, before ending the session down 3.8%. What’s unfolding south of the border?

Yet the real action was with the British pound and Japanese yen. The pound traded overnight at 1.324 to the dollar, a 30-year low – before cutting Friday’s losses to 8.1% at 136.79. And with the yen surging an alarmingly quick 5% versus the dollar, the pound was at one point down about 15% versus the yen.

Currency markets badly dislocated. And discontinuous markets are a major problem for those dynamically hedging derivative exposures as well as players that are leveraged. The pound’s abrupt fall was understandable considering the amount of hedging going into the referendum. But in the yen’s discontinuity I discern important confirmation of the thesis that there remains enormous amounts of leverage in short yen “carry trades” (short/borrow in yen to finance trades in higher-yielding currencies).

The impairment of the leveraged speculating community remains an important facet of the bursting Bubble thesis. There are surely casualties from Thursday night and Friday’s trading fiasco. And as hedge fund losses mount, the potential for major redemptions appears increasingly likely. We should expect de-risking/de-leveraging to intensify. And while central banks will continue to abundantly supply a liquidity backstop, I don’t believe such measures at this point will tame problematic volatility. Market correlations have run amuck. Hedging strategies are problematic. So risk exposures have to get smaller. Uncertainties have become too great.

June 24 – UK Daily Express (Jonathan Owen): “Five European countries may seek to follow Britain’s lead in leaving the EU in a Brexit domino effect, Germany has warned… Tensions are rising across the EU, with Denmark, France, Italy, the Netherlands, and Sweden all facing demands for referendums over Europe. In a statement, German Chancellor Angela Merkel said: ‘There is no point beating about the bush: today is a watershed for Europe, it is a watershed for the European unification process.’”

European integration is again under existential threat. And while disintegration will likely unfold over the coming years, a crisis of confidence in the markets could erupt at any point.

Confidence in Europe’s banks is faltering badly. I believe faith in the ECB’s capacity to hold the banks and securities markets together is waning. How much leverage has accumulated throughout European periphery bond markets? And it is a harsh reality of Europe’s financial structure that de-risking/de-leveraging dynamics tend to see rising yields/widening spreads intensify market fears of bank impairment. Then bank worries further negatively impact sentiment in the markets and business community in a problematic vicious spiral.

The ECB could boost QE, but it recently did that. It could buy corporate debt, but it has started doing this already as well. Negative rates only worsen the banks’ predicament. And bankers facing such extraordinary uncertainties will extend Credit cautiously - in Europe, throughout EM and in securities finance. When the world worries about Europe’s financial structure and economic prospects, fears can quickly spread globally. I find myself worrying more about China. U.S. markets have remained resilient. On the one hand, our markets win by default. On the other, best I can tell there is no market in the world that remains so oblivious to a bevy of unfolding financial, market, economic and geopolitical risks. Central banks are losing control and I fear “contemporary finance” is again in the crosshairs.

Cash Is King: Everything Else Has Too Many Problems

by: DoctoRx
- Cash has begun to look better and better to me as an asset class.

- A bond bull for years, I've been taking profits there for reasons discussed below.

- Precious metals and stocks have their negatives, which I discuss as well.

- Thus I think that for US-based investors, the "cash is trash" theme maybe should be re-examined in favor of keeping powder dry for better buying opportunities.

- Which asset class(es) will provide that opportunity will simply have to be sorted out as fundamentals and technicals guide us.
Introduction - why cash may be King
This article's thesis is that the three major asset classes I've been following, owning, trading and writing about since I began a blog in 2008 are all difficult buys for new money and that cash is now attractive as the least dirty shirt. As the old Street saying goes, there's always a bull market somewhere; but if you lose money now, with interest rates so low, you may never get back to even.
Ever since I began writing for public consumption in late 2008, I've almost always been positive on something - i.e. either gold and silver, and other inflation/weak dollar plays; Treasuries or at times muni bonds; domestic shale oil driller or related stocks; or, biotechs. I'll have a few words on most of those asset classes next, but first, it's time to make the case for cash.
To repeat, this article is a change for me, in that except for early 2009, not finding any asset class attractive is a first for me in this entire tricky investment scene.
Important: this is written from a US perspective, i.e. that of a US citizen living and writing in the US. My views might be very different if I lived in the eurozone, Japan or elsewhere, where interest rates and stock valuations are quite different from here.
Also, there are timing aspects to this article that are difficult to define. If you are a (say) 30-year old professional or successful businessperson, and are in a saving mode, and have (say) a 50-year time frame on your investments, you may have no special interest in ever owning cash.
You may just want to average down if your favored asset class drops in price against cash. On the other extreme, if you're of a certain age, you may just want secure income greater than cash can provide.
This article is therefore mostly intended to discuss a multi-month to multi-year time frame for individual investors or asset managers who can think and act strategically to achieve alpha over time with acceptable risk. Here the risk is of being out of overvalued markets. Thus:
A brief case to overweight cash
There are theoretical and practical points to mention here.
Beginning with the practical point, pretty much all asset classes in the US key off of the shorter-term Treasury market. As I write this, a 2-year T-note yields about 0.70% per year. Buying that bond means that aside from taxes and any brokerage fees, $100 will turn into $101.40 in two years. T-bills are liquid; going into an illiquid 2-year bank CD can yield as much as 1.5%, which is less unattractive and could keep up with inflation, but which offers less opportunity to liquidate it penalty-free to jump into an asset which looks good.
As far as truly liquid cash goes, for several years, the online "high yield" savings account from American Express (NYSE:AXP) has yielded a steady 0.9% for several years. That's from an AmEx-owned bank with a AAA-rating last I looked, FDIC insurance, and almost unrestricted withdrawal privileges (6 per month). This of course can float down, but it's been there or near there for quite some time, and if the rate declines a lot, maybe stocks will be cheaper than now so cash will be a good thing. Other online banks have similar yields, though they may not have the history of high yields that the Amex bank has (I'm a depositor with the AmEx bank, but have no relationship with it beyond that).
I find this yield with full access to the money reasonably attractive given rates on Treasury bills, notes and money market funds.
Now, the theoretical underpinning of this pro-cash thesis:
That many years of "QE" - a highfalutin term for "excessive money printing" have pushed all tradable asset prices to extreme levels. That's except for the commodities prices that have fallen in line with the collapse of the China growth story. Driving all these rolling bull markets has been the underlying theme of all the speculation has been that cash is trash, therefore money needed to rotate into something.
But now I think that it's all pretty much played out on an intermediate-term time frame. Even at somewhat higher interest rates, I recently had positive things to say about Treasuries, but with the panic drop in rates this week (and the turnaround Thursday), this move may also be played out.
In other words, it was revealed in 2011 and 2012 that the entire commodities boom was built on the sand of a floundering EU economy, more weakness in the US than expected, and as the next years went by, by what amounts to recession in China. That led to QE 3 and the final advance in biotech and most bubble-type information technology stocks. Then when the US economy decelerated, money bid up the remaining reasonably-valued assets, namely Treasuries and bond substitutes such as consumer staples and utilities.
With that, and with extremely low cap rates on commercial real estate, it's either move on to foreign markets, which I'm not addressing in this article, or take the best market rate available on cash or near-cash.
Next, the reasons I'm finally turning negative on Treasuries from a trading standpoint.
The case against bonds gets better, at least on a trading basis
I've been saying for five years that bonds were in a structural bull market that (five years ago) had real value and that, importantly, was hated and/or ignored by the entire financial media.
This hatred, disdain and obscure nature made it attractive to me on several fronts.
Thus, when I got the right fundamental signals, five years ago, as documented in several blog posts, I made a 180 degree turn from pro-inflation hedges to pro-disinflation hedges.
On a 5-year basis, the longer-duration zero coupon Treasury bond fund run by PIMCO (NYSEARCA:ZROZ) has outperformed the stock market (NYSEARCA:SPY) in price by over 2 points per year while probably yielding an additional 2 points per year in payouts. ZROZ has also beaten SPY on a 1 and 2 year basis. Now this outperformance may have peaked.
Note how different the media reporting of bonds is now, from the way I described matters just 2+ years ago on Seeking Alpha:
On March 17, 2014, with the stock market red-hot and the unconventional oil boom in full swing, I trusted that the Fed would finally follow through on tapering QE 3, and, expecting that the economy would promptly decelerate, I wrote an article titled Turning Bullish On Bonds.
The two most important bullet points from that article were:
  • Historic bond bull market lives, with important implications for all investors; and
  • Implications for stocks are short-term neutral, intermediate-term negative.
My conclusion was:
Conclusion: Both as a portfolio diversifier and as an aggressive long strategy, investors and speculators may wish to consider the possibility that the amazing bull market in bonds may have a good deal more life left and thus may merit either a trading position (not necessarily after the recent run-up) or a core position for long-term investment.
I also clarified my views in a response to a reader's comment:
I did not call for deflation per se. IMO, the US interest rate structure can continue structurally to trend downwards w/o price deflation.
Let's see how that call held up.
On March 17, 2014, SPY opened at $184. It closed on Thursday, June 16, 2016 at $208 (rounding). That's a 13% price increase in a little over 2 years. With estimated dividends, that comes to about an 8% per year total return. Not bad; basically historically average. But it's only that good because interest rates have completely collapsed in the US and globally:
ZROZ has clobbered the SPY. ZROZ has gone from $92 to $132. That's a 43% price increase.
Counting about 4% payouts on ZROZ, that comes to about a 23% CAGR. For a mere T-bond fund for a period greater than 2 years, that's quite amazing - and distressing, given that the starting yield (on March 17) was already notably under 4%.
The lower duration T-bond fund that is far more popular than ZROZ (NYSEARCA:TLT), has risen from $108 to $136 in that time frame, a 26% increase. This doubles the percentage rise of SPY with about double the percent payout as well.
None of that bond outperformance was expected to happen given that there were several months and several hundred billions of dollars of QE 3 money still to be printed. All this money was intended to create a wealth effect and in other ways stimulate the economy and thus the stock market.
Since almost all the Fed has done for the nearly two years that QE 3 has ended or effectively ended is dither and find excuses not to normalize policy, this should be a risk on environment.
A tenet of risk on investing is that the longer duration assets outperform shorter duration ones, all else equal. And a Treasury bond fund yielding, on average, roughly 3% should not, not, not outperform a much longer-duration growth asset such as the SPY if any QE principles were valid.
This merely continues the outperformance of bonds on a multi-year basis over stocks on most time points since 1981.
But now the bond bull smells fishy (to mix metaphorical species).
The traders are finally wise to this game. Much of the developed world's corporate bonds are yielding little or nothing. This is beyond bizarre; it's inappropriate monetary policy; the investing and general public has begun to rebel.
Another danger signal for bonds is that for some months now I have seen Yahoo! Finance (NASDAQ:YHOO) and other sites report that a commentator or hedge fund is recommending long term Treasuries as a momentum play. The message is, buy now, because rates are going even lower.
I actually think this may very well happen in the US at some point.
This looks like the end or perhaps near the end of a frantic move. The RSI on the 10 and 30 year T-bonds dropped to around 25 today (daily chart; mid-30's on the weekly chart). This is a classic trading sell point.
There is now a significant speculative element to the yield curve, focused on the long end, so I've been lightening up significantly on long bonds. After all, even in Japan, nominal GDP was running at zero for a goodly number of years before the 30-year bond got sustainably below 2%. The US GDP, sluggish though it is, does not merit a 1.5% 10-year T-bond - at least, not yet.
The possibility of a global bond bear market, or bear move, is high now.
So for new money, I would like cash over longer-term bonds here.
Then there are gold and silver, which have been rising along with bond prices as weak dollar plays.
Gold and silver - moving in panic with interest rates but out of sync with other commodities
As I said above, my thesis is that investors have been trying desperately to find something that works, given the Prime Directive from the Fed that cash is trash. So with declining interest rates, people have glommed onto gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV). My take is that this is typical late-cycle stagflationary action which tends to peter out in recession or near-recession.
With the Fed sidelined for now, it's difficult for me to think of a strong up-cycle in inflation, at least now. I think it's not unreasonable to think of the global economy as just too weak right now to generate enough inflation to really push gold up beyond $1300.
This is very different from the primary metals bull market that began in 2001 and began to manic right after I wrote the following as a blogger in a post from October 2010:
Right now, the premia over NAV for GTU and PHYS [bullion gold funds] are at historically low levels. This along with the slow ramp-up in assets in the Rydex SGI Precious Metals mutual fund and the utter lack of speculative froth in Newmont [NEM], Goldcorp [GG] and Barrick [ABX] suggest to me that the strong bull market in gold is the most apathetic one from the public's standpoint I have ever seen in any major asset class.
However, that changed dramatically by spring 2011 (summer for gold and platinum). The public went all in, and then some, and now speculative positioning in gold and silver (and oil) is very bullish - to me, a potential warning sign.
I'm cautious in good part because of the horrendous bear markets in crude oil, copper and even lumber. In 2010, if I remember correctly, the average exchange-traded commodity was up 29%, and gold was up... 29%. That's the way it should be. Gold should be a marker for general inflation, but where's the inflation from these key commodities shown below? First, oil.
Here is oil from FINVIZ, which ever since gold traded freely in the 1970s has tracked gold:
Where's the inflation?
Where's the inflation here?
Of course, any asset can go anywhere at any time.
That said, this move in gold and silver, mostly in isolation except for the crazy global bond bull market (and some move in the ags), reminds me of the periodic flares in gold in the 1980s and '90s. Finally, fully washed out, gold began soaring as the Bush administrated emulated LBJ and did a 'guns and butter' policy after the 9/11 attacks 15 years ago, "paid for" by the Fed. That was a clear inflationary policy signal. Here, the Federal deficit is "normal" as a percent of GDP and the Fed is neutral. That's very different from the typical bull market pattern for the metals.
Finally, I do not want to jump into the gold-silver complex when silver keeps making bearish wicks on the intra-day chart; also from FINVIZ:
All this effort just to stay in the structural downtrend and barely break through the mild, unimpressive rebound high of May 2015, with many wicks pointing the wrong way in this rally? I'd rather stand aside and let the rally prove itself. And while gold looks better than silver, gold can't do it alone.
If I had gotten into silver at $15 or below in a big way, or gold, I'd be taking some profits and sitting in cash with those profits.
That leaves equities. 
US stocks more toppy than not
My views on this asset class from a macro standpoint are well known. At this point, the only good case for US stocks is the one that they are the least bad asset class, or that a patient investor willing to perhaps wait decades comes out best with stocks than anything else.
No matter that stocks have not beaten bonds for the past 50 years. They had their matching bear markets from 1966-81/2 and then their matching bull markets.
On a shorter-term basis, I don't like the prospects for corporate profits.
On the one hand, the low nominal GDP growth to which bonds are responding bullishly is bad for stocks. On the other hand, the inflationary issues to which gold and silver are responding are also bad for stocks, by shrinking profit margins. We see this sort of margin pressure in almost every regional Fed purchasing survey - input costs rising but much less ability to raise selling prices. This is doubleplus not good for stocks. It never has been and I don't expect that now. Conditions can of course change, but on a macro basis, I would underweight the US stock market if I were constructing a portfolio de novo.
Personally, since I've been so very underweighted in equities for so long, I've observed that 20X P/E's are somewhat like the new 10X - if the Street likes a company. Thus I have begun trading in and out of such income vehicles with staying power such as Boeing (NYSE:BA) and a trading favorite Amgen (NASDAQ:AMGN), each with decent yields and TTM GAAP P/E's well below 20X. Plus I like and own all my usual biotech/pharma names on a more or less permanent basis.
That stuff aside, and focusing on the big picture for the SPY, this looks like a classic late-cycle stagflationary situation for stocks, with margin compression. 24X EPS for this? With even higher P/E's for even worse merchandise in the smaller stocks below the many dominant companies in the '500?'
If almost 4 uninterrupted months of "greed" or "extreme greed" per the CNN Money Fear & Greed oscillator couldn't push the SPY to a new high, then I really don't love the technicals on this market - matching not loving the fundamentals.
So I think the case to underweight equities joins the case to be cautious about the precious metals and the case to either lighten up on bonds or not jump into them now if out of them.
Where does all that leave investors?
Basically it leaves us in a sort of suspended animation. To summarize, it's very late in the bond game, and even later in the stock game. If gold and silver are signaling a significant rise of inflation, then it's early in the commodities cycle, with lots of upside in oil, copper, silver, etc. likely. If so, what's the rush to get in there? Maybe silver will finally go to $100, or even the $200 that the silver bulls were looking for in 2011. There's time for the charts and fundamentals to show the real power of this move.
With cash in a high-yield demand deposit savings account, or near-cash in some short-term bond fund or insured bank CD, the investor has limited give-up (or, opportunity) cost relative to other safe investments.
A big-picture comment to close the article:
We have never, ever come close to being "here" before, where the Fed has created more excess monetary units than are being used in the actual economy. This is what QE 2 wrought, with QE 3 an over-the-top, jumping-the-shark gigantic policy error. And, it was made even worse when then-Fed chairman Bernanke backed away from tapering QE 3 in the spring of 2013 due to the "taper tantrum."
Also, at every FOMC meeting, the Fed announces that it will continue to "print" new money to "reinvest" the proceeds from maturing bonds. This too is a virulent, large and continuing form of QE and continues to pump up asset prices. But we're inured to it by now, and that argues against pushing the asset inflation theme at this late stage of the financial and economic cycle.
With valuations of US stocks at 1998 (bubble or near-bubble) levels, weak sales growth and margin pressures; with the entire interest rate curve looking unattractive; and with gold difficult to put a valuation on, cash yielding something looks to me like the least unattractive of these assets to overweight based on an intermediate-term time frame.

After ‘Brexit,’ 3 Centuries of Unity in Britain Are in Danger


Nicola Sturgeon, Scotland’s first minister, spoke on Friday about a possible independence vote. Credit Oli Scarff/Agence France-Presse — Getty Images

WASHINGTON — When people discuss the stakes of Britain’s decision to leave the European Union, they often talk about implications for the “European project,” the continuing post-World War II effort to unify the Continent politically and economically. But within hours of the polls’ closing on Thursday, it appeared that something much more basic could be at risk: Britain as a multinational state.

The United Kingdom of Great Britain and Northern Ireland, as it is formally known, is one of only a handful of countries that consist of multiple nations, politically and legally distinct but united under a common government.

That system of government has been the subject of far less frenzied commentary than European unity, because it is smaller, and because it has seemed so stable. But the crisis-ridden, relatively young European Union may well outlast the 300-year-old United Kingdom, a prospect that speaks to both the underappreciated audacity of Britain’s multinational experiment and the strength of the forces that could now put it to an end.

There has long been political jostling among the four nations that constitute the United Kingdom, but the so-called Brexit referendum has divided them in ways that mean they may not come back together again. England and Wales voted to leave the union. Scotland and Northern Ireland voted to stay. Within hours, Scottish and Irish politicians raised the possibility that their nations would leave the United Kingdom so they could remain in the European Union.

“This outcome tonight dramatically changes the political landscape here in the North of Ireland,” said Declan Kearney, the chairman of the political party Sinn Fein, which has legislators in Northern Ireland and the Republic of Ireland and has long sought their reunification. Mr. Kearney said Sinn Fein would seek a referendum to have Northern Ireland leave the United Kingdom and join Ireland, an independent country (and European Union member).

Scotland rejected a proposal to quit the United Kingdom in a referendum in 2014, in part over concerns that as an independent country, it would be unable to join the European Union and would suffer economically. On Friday, Nicola Sturgeon, the first minister of Scotland, said her party would “prepare the legislation that would be required to enable a new independence referendum to take place.”
Gerry Adams, the president of the Sinn Fein political party, left, and Martin McGuinness, Northern Ireland’s deputy first minister, discussed Britain’s vote to leave the European Union at a news conference Friday in Belfast, Northern Ireland. Credit Charles Mcquillan/Getty Images 

In Scotland and Northern Ireland, the calls to leave the United Kingdom may focus on the economic benefits of European Union membership, but they will also overlap with — and, if they are to succeed, rely upon — more visceral desires for independence.

After all, the world has spent much of the last few centuries organizing itself under the principle of national self-determination, in which people with a common identity acquire their own state. Think of Italy for the Italians in the 1870s, Algeria for the Algerians in 1962, Tajikistan for the Tajiks in 1991 and so on.

While this idea has brought liberation to much of the world, it has also contributed to countless wars, including Nazi Germany’s invasions to “unify” with the German people of Austria and Czechoslovakia, the violent breakup of Yugoslavia along ethno-linguistic lines and the Israel-Palestine conflict.

What makes the United Kingdom so unusual is that it brought together four nationalities who see themselves as distinct yet have chosen to coexist. Multinational states are rare. Some, like China, are undemocratic and oppose political organizing by minority groups, including Tibetans and Uighurs. Others, such as Russia and Nigeria, have struggled to peacefully and effectively unify.

In this way, the United Kingdom has been what the European Union always aspired to be but never accomplished: an honest-to-god political union that respects national identity while overcoming the complications of nationalism that helped make the 20th century the bloodiest in world history.

Still, questions of national identity have pulled at the country since 1707, when the Kingdom of England and the Kingdom of Scotland merged to become the Kingdom of Great Britain.

Because the English have so dominated the country’s politics, culture and economy — they are the largest group, and England’s capital, London, became the kingdom’s — Scots have long pushed for greater autonomy.

These questions have been even harder for Northern Ireland, which experienced a violent internal conflict, partly over whether to remain in the United Kingdom or to join Ireland, for much of the 20th century’s latter half. The long road to the 1998 Good Friday peace agreement illustrated the difficulty of keeping a multinational state together, and the calm in Northern Ireland since the agreement shows the value of such a state.

Having survived nationalist yearnings from Scotland and Northern Ireland, the United Kingdom could now succumb to the nationalism of its largest and most powerful group: the English.

“The referendum campaign, to most people’s surprise — and alarm, even — has brought out English identity,” Robert Tombs, a historian at the University of Cambridge, said in an interview before the vote.

The English voted most heavily to leave the union. While many analysts say this grew out of opposition to immigration or skepticism about Europe, Mr. Tombs suggested another driver: an English sense of being underrepresented in their own country.

In recent decades, the United Kingdom has kept unity by “devolving” political authority to the three non-English nations, allowing them greater autonomy and independent institutions. Only England, for example, does not have its own Parliament.

It is hard to miss the significance that voters in one of the world’s most successful multinational states just chose to leave the world’s largest multinational government. And it is striking the degree to which the United Kingdom’s four nations seem to have disagreed on that choice.

The European Union was explicitly founded to address problems of national and political identity. Britain, its most skeptical member, dealt with those very same problems — sooner, and with more success.

Now the country could be about to abandon that project, even as the union, for all its setbacks, carries on. But it speaks to the promise of multinationalism that its most committed adherents in the United Kingdom are not the largest and most powerful group, but rather the minority Scottish and Irish so eager to be tied to something larger, even if that means leaving the old partnership to remain in Europe.

Wall Street's Best Minds

Winners and Losers of the Brexit Vote

It’s a bad day for multi-country trade pacts, Brussels bureaucrats, British pollsters, and the status quo.

By Greg Valliere    

In what will be remembered for years to come as an economic and political turning point, the Established Order has been rebuked in a dozen profound ways:
1. Let’s not kid ourselves, the Brexit vote was about immigration and the Islamization of Europe. Politicians are capitalizing on people’s fears, and those fears seem legitimate.
2. A death blow to free trade and globalization. Even Hillary Clinton — an architect of free trade deals — now repudiates them. Victimization is all the rage, and the victims of free trade have the upper hand.

3. Who’s next? Several candidates, but let’s focus on the Big One — France, reeling from terrorist threats, strikes and a stagnant economy. A recent poll showed 61% of the French people want out of the EU.

4. Good luck propping up Greece: Voters won’t tolerate it. No more special deals for profligate countries; those days are gone.

5. Austerity is radioactive: The pendulum already was swinging sharply against austerity; fiscal policies may loosen, not a moment too soon. Interest rates are so ridiculously low that deficits and inflation would actually be welcomed; bond markets wouldn’t care, at least not initially.

6. Everyone hates Germany: Angela Merkel has been loathed outside of Germany because of her bitter fiscal medicine, but now her popularity at home is fading. The reason — see point one — is the surge of Muslim immigrants, which she has encouraged.

7. Brussels Equals Washington: No one wants to be dominated by faceless bureaucrats. The contemptible London newspapers — scrambling for profits in a dying industry — have exaggerated the impact of Brussels on British life, but the public revulsion toward Brussels bureaucrats sends a clear message to Washington.

8. Janet Yellen’s reaction: Not only is a rate hike off the table for the rest of the year, weaker economic growth may prompt the Fed to consider what once was unthinkable: non-traditional monetary policies.

9. Another blow to the polltakers: Let’s be blunt — the polltakers stink. They have huge problems with their methodology — cell phones versus land-lines in particular — but there’s a more important issue: people who hold controversial views don’t like to admit it to strangers.
10. A huge blow to Barack Obama: Already reeling yesterday from a Supreme Court ruling on immigration, Obama must realize that his intrusion into the Brexit vote actually hurt David Cameron.

11. Vladimir Putin must be happy. The EU is so dysfunctional that the notion of Europe stopping Russian aggression is laughable. The Brexit vote should make people in eastern Ukraine very, very nervous.

12. Donald Trump must be VERY happy. Enjoying his best week after a two-month slump, Trump has an opening. A seething resentment of the establishment is bubbling up everywhere, and this week’s turmoil — from the floor of the House to the financial markets — only helps him.

BOTTOM LINE: This is an earthquake, and the tremors will reverberate for years to come. Markets hate uncertainty, of course, and the world just became dramatically less certain. A severe market selloff would seem to be an appropriate response.

Valliere is the Washington-based chief investment strategist with Horizon Investments.

Investment banking

Diving into the mire

Wells Fargo leaps into a swamp from which most banks are retreating

WHEN Wells Fargo’s competitors were spending fortunes building up big investment-banking operations in the 1980s and 1990s, the bank’s chief executive at the time, Richard Kovacevich, refused to follow suit, joking that the business would be a good one to get into were it not for all the people who worked in it. Instead he concentrated on building up a nationwide network of branches (“stores” in Wells-speak) to take in deposits and sell mortgages, credit cards and insurance. This strategy was vindicated when the financial crisis struck, turning once lucrative investment-banking franchises into millstones. Wells, meanwhile, became the most profitable big bank in America.

But an odd thing happened in the process. Wells’s strength during the crisis allowed it to snap up Wachovia, a regional bank whose dense network in the eastern part of country perfectly complemented Wells’s in the west. Wachovia also happened to have a sizeable investment bank.

Many assumed Wells would promptly sell the unit, or shut it down. Instead, it has expanded it, even as other banks have been hacking away frantically at their investment-banking arms. In the first quarter of 2007, before the takeover of Wachovia, Wells had no investment-banking revenue at all; Wachovia underwrote $831m-worth of share offerings, putting it twelfth in the American rankings. In the first quarter of this year, Wells underwrote $1.23 billion of share offerings, putting it ninth in the rankings (see chart). It recently bought six stories of a skyscraper under construction in Manhattan, which will include two big trading floors.

Wells’s investment-banking operation is still far smaller than those of the giants of Wall Street: JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of America. But its equity underwriting in America has surpassed that of Deutsche Bank, which had sought to elbow in to the top ranks. Jamie Dimon, the boss of JPMorgan Chase, recently noted that Wells was “actively”, “aggressively” and “successfully” building an American investment bank.

There are clear limits to Wells’s ambition. The Wachovia deal notwithstanding, it is not fond of takeovers, which it believes bring unforeseen problems and employees who will bolt unless rewarded (those dreadful investment bankers again), at a cost that would make its existing staff bitter. It also has limited interest in expanding abroad, since it does not want to have to navigate multiple regulatory regimes. Fully 95% of the employees of its investment bank are in America; 90% of its revenues originate there.

Instead, Wells hopes to grow in America by helping more of its corporate customers buy derivatives, issue debt or equity, or navigate takeovers. Investment banking currently produces about 5% of the bank’s revenues; it says it would like the number to rise to as much as 15%, but no higher.

Wells’s sudden enthusiasm for the business may seem counterintuitive, but it has always sold itself as a fast-growing company. Retail and commercial banking are competitive businesses; last year Wells’s revenues were up by a mere 2%—and that was still better than most of its rivals.

Regulators are also trying to discourage America’s biggest banks from growing much bigger (Wells is already the third-biggest by assets, with a balance-sheet of $1.8 trillion). There is talk of requiring the biggest ones to hold even more capital, beyond the surcharge already imposed on “systemically important” ones. In that sort of climate, a business which could make more efficient use of existing clients and which holds out the promise (often forlorn) of higher returns on capital is hard to ignore.

Europe’s Refugee Culture Clash

Paulina Neuding
. Newsart for Europe’s Refugee Culture Clash

STOCKHOLM – The international Christian organization Open Doors has reported that Christians at asylum centers in Germany – the European country that has accepted the most migrants – face “fear and panic,” owing to widespread harassment by other asylum-seekers.

Gay asylum-seekers are offered shelter at special homes in Germany, for their own protection.

In Sweden, which has taken in the second-highest number of asylum-seekers in Europe – and the highest number per capita – migration authorities may now establish safe zones for women at asylum centers, where Christians and gays have also reported harassment.
Discussions about the influx of migrants into Europe have tended to focus on logistics, such as how to provide enough beds for the 1.1 million asylum-seekers who arrived in Germany last year, or the more than 160,000 who arrived in Sweden. But, as the conflicts in asylum centers reveal, the challenge is far more complex than that.
Indeed, the refugee crisis in Europe is more a matter of culture than of numbers. And cultural clashes are much harder to address than logistics – especially once they leave the regulated confines of the asylum center, which can mitigate potential conflicts with surveillance and design. How will individuals who cannot share a shelter with gays and Christians without harassing them be able to integrate into liberal European societies?
The German and Swedish governments have not placed a high priority on addressing this question. In fact, both have failed to take seriously the cultural differences – on issues like women’s rights, minority rights, family honor, and individual liberties – between asylum-seekers, mainly from the Middle East and North Africa, and the European societies where they hope to live. In Sweden, in particular, a strong commitment to political correctness has severely limited public debate.
In ignoring these differences, the political elites in both Germany and Sweden are risking some of their countries’ most valuable social assets, including security, stability, equality, tolerance, and individual freedom. Yet they fail to note these risks. They act like their hard-won social advantages are inexhaustible natural resources, rather than the product of centuries of development – a product that is far more fragile than is widely assumed.
Perhaps the most obvious example of the threat European societies faces occurred in Cologne, Germany, on New Year’s Eve, when more than 600 women were sexually assaulted – and in some cases also robbed – by large gangs of men, most of whom were illegal immigrants or asylum-seekers. Only four of the 153 suspects detained were German nationals.
Though mass sexual abuse is not unheard of in Europe, it has historically occurred only during conflicts – for example, during the Balkan wars of the 1990s and in the areas occupied by the Soviet Red Army at the end of World War II. What happened in Cologne last December has no equivalent in peacetime Western Europe.
Nor was it a one-off event. Shortly after the news of the Cologne attacks broke, it was revealed that similar attacks had taken place at the We Are Stockholm youth festival in the Swedish capital two years in a row, with young refugee men encircling and sexually assaulting teenage girls. Police had to escort 200 male attendees from the festival area last year.
For Roger Ticoalu, who heads the Stockholm city government’s events department, and his colleagues, the assaults were utterly shocking. “When we got the first indications of what happened,” he explained, “we didn’t think it could be true.” And yet it was not just true; it was pervasive – and it has continued in other contexts.
Over the last six months, reports of harassment at public bathhouses in Sweden have multiplied, with the same group approach – “a new phenomenon for us,” according to the director of a public pool in Östersund, a city in Sweden’s north – employed repeatedly. In Bornheim, Germany, male asylum-seekers had to be banned temporarily from a local bathhouse in January, after complaints of sexual harassment.
In response to the mounting anecdotal evidence of sexual abuse, Swedish police undertook an analysis of all harassment that has been occurring in public spaces. Their findings confirm that there is a problem with immigrants acting in groups to attack women and girls.
In response to this so-called “culture clash,” Sweden has launched an initiative to educate young asylum-seekers about gender equality. Likewise, Germany created an informational website, offering advice on sex and sexuality, among other topics. Whether or not such initiatives ultimately have an impact, there is no denying that in Germany and Sweden – two of the world’s most open, tolerant, and equitable societies – women and girls now face a new reality.
German and Swedish authorities have already had to take measures to protect women in public spaces. At the beginning of the year, Stockholm’s largest public bathhouse introduced single-sex time slots for the whirlpool; shortly thereafter, police officers began patrolling the area. At this year’s We Are Stockholm festival, there will be both a larger police presence and widespread video surveillance.
Large numbers of police, together with safe zones for women, helped to protect against mass sexual assaults at the carnival festivities in Cologne in February. But, as the debate over refugees rages on, one must ask: Are “safe zones for women” Europe’s future?

Household Formation Is Affecting Economic Growth

by: Steven Hansen
- Residential sales rate of growth seems to have slowed recently.

- The easiest dynamic to visualize is the rate of household formation which affects residential sales.

- Both the residential sector and the economy in general are constrained by lower household formation rates than seen in the past.
- The housing sector, both new and used homes, is well below peaks from before the Great Recession.
- Is this an effect of weak economic growth or simply reflecting demographic change?
- Existing home sales appear to be plateauing roughly 2/3's to 3/4's of the pre-recession peak.
New one family homes sold (not including multifamily structures) is less than half of the pre-recession peak (multifamily housing is currently the strength in this series).
And new home sales contribution to GDP is only 2/3's the pre-recession peak (existing home sales are not included in GDP).
There are many dynamics which are affecting home sales - especially the changing tastes of the generations. The boomers generally are downsizing.
The majority of Generation X have formed their households. Millennials seems to have urban tastes with a higher propensity to rent than the previous generations.
Generation NameBirths StartingBirths Ending
Baby Boomer Generation19451964
Generation X19611981
Generation Y - The Millennials - Gen Next19751995
Generation Z19952015
Consider that the most significant dynamic impacting home sales is household formation which is nearly half the rate seen in the 70's and early 80's.
Household formation data used in the above graph is from US Census and includes UNMARRIED and same sex people living together.
My take on economic relevance
Household formation has been trending up recently. I used 5 year rolling averages for the data to smooth out this fairly volatile data so that trends would be more obvious. If the current trends continue, household formation rates will recover in 10 to 15 years. Whether this happens or not is beyond my capability to analyze.
Much of consumer spending is household driven - especially for home purchase or renting a home.
A major contributor to the USA's (and the advance economies in general) weak economic growth relates to household formation. New households spend a lot more money than established households. Much of the significant economic growth seen in the 70's and 80's was a direct result of increased spending resulting from household formation.

30 Blocks of Dog Shit and Sugar Taxes

 By: The Burning Platform

Earlier this week I left for work on a cool crisp sunny morning at 6:30 am. Traffic seemed lighter than usual. Even the Schuylkill Expressway was moving smoothly. I just knew it was going to be one of those rare 45 minute uneventful commutes. Boy was I mistaken. Half way down the Schuylkill traffic came to a grinding halt. I flipped on the traffic report and found out there was a bad bus accident near Girard Avenue blocking two lanes. My delightful commute had turned into a house of horrors. We inched along at 5 mph for the next five miles.

My Plan B was in effect. I'd get off at Belmont Avenue and take that to Girard Avenue (Route 30) and then down to 34th Street where I usually end up in the morning. Of course, hundreds of other drivers chose the same Plan B. The ramp to get off the Schuylkill and onto Belmont was jammed. I eventually got onto Belmont and proceeded past City Line Avenue and into the jungles of West Philly. My day got even better when there was an accident on Belmont in the right lane that delayed my commute further. But I eventually made it to the intersection of Belmont and Girard, making my left turn into Squalor.,-75.2122089,3a,75y,151.73h,90t/data=!3m4!1e1!3m2!1sP1kKOswcct_4Oxk-Uo42FA!2e0

I only had to traverse these means streets of West Philly for 10 blocks to gain the relative safety of the Zoo area. Of course, these ten blocks were a different type of zoo, with it's own unique habitat and wildlife. One problem. The route was gridlocked because so many cars were trying to go around the accident on the Schuylkill. This meant I got to inch along for ten blocks and observe the Squalor in minute detail. As I have documented in dozens of previous articles, the depravity, decay and degradation of West Philly cannot be overstated. It has to be seen to be believed. A once thriving neighborhood in the 1950s now looks worse than downtown Baghdad after shock and awe.

The picture below is representative of 75% of the houses along this stretch of squalor. The occupied houses are crumbling hovels, with collapsing porch stoops, broken windows, leaking roofs, and a generally dilapidated state of repair. The sidewalks and streets are in a similar state of disrepair, as the City of Philadelphia doesn't give a crap about this part of Philly either. 

The corrupt Democrat politicians spend their dwindling cash horde on union pensions and keeping the white people in Center City and Society Hill safe from the dregs in West Philly. The funniest part is this section of West Philly has been declared an Obama Keystone Zone. I guess I'm missing the revitalized part.

Row Houses

As I observed the decaying landscape, I wondered why it has come to this. Liberal Democrats have controlled the city for 60 years, with virtually no opposition from Republicans. West Philly precincts voted 99% for Obama in 2008 and 2012. The Great Society welfare programs have been in effect for 50 years. I can guarantee you at least 90% of the people along this stretch of squalor are on welfare, SSDI, Section 8, Medicare, SNAP, and the myriad of other tools for keeping them voting Democrat.

Welfare programs were supposed to lift the poor out of poverty. Instead it has enslaved them in squalor by taking away their incentive to improve their lot in life. The result can be seen along Girard Avenue.

Democrat politicians have taxed, regulated, and shaken down businesses for decades, forcing them to leave the city. When businesses leave, jobs leave. Government fills the breach by hiring more union government drones and spreading the dwindling taxes of the producers to the non-producers in the form of entitlements. The white flight began in the 1970s and is complete in major areas of Philly.

There are virtually no white people living on Girard Avenue. When I observed a tough looking white dude sitting on the porch of a hovel, I was shocked by his bravery and/or stupidity.

The Democrat politicians who have ruled Philly for decades have certainly created the dynamic of decay in West Philly. But, the black people inhabiting these neighborhoods deserve a portion of the blame too. When you drive down Girard Avenue, you notice a Direct TV dish on the top of every inhabited hovel. The people shuffling along the crumbling sidewalks are wearing high end sneakers and tapping away on their iPhones. There are plenty of $30,000 to $50,000 vehicles parked in front of their $20,000 hovels. So they appear to have enough money for luxuries, but it is too much for them to pick up the garbage littering their streets, fix a broken window, or slap some paint on a window sill. No matter how poor, you are responsible for your home and your neighborhood.

Messy Street

As I continued my slow trek I observed something that captures the essence of West Philly and the people living there. I looked to my right and my attention was drawn to the sidewalk where something brown extended for at least five feet in the middle of the sidewalk where people would expect to walk. At first I wasn't sure, but as I got closer it was clear. It was multiple piles of dog shit. Evidently from a big ass dog or dogs. One or more of the fine inhabitants of this neighborhood thought it was just fine to let their Rottweilers take a dump in the middle of the sidewalk and not clean it up. That attitude represents the 30 Blocks of Squalor to a tee. If you have no self respect, you have no respect for others. The people living in these neighborhoods are ignorant, selfish, and wallow in their self imposed poverty, while waiting for government to lift them up.

Photographing Dog Shit

Not every person living in West Philly is an ignorant, lazy, welfare queen, dependent upon the state for their sustenance. But facts don't lie. Most of the residents are on welfare. Over 50% of the school students drop out in high school. Over 75% of the children are born out of wedlock (I observed two girls who couldn't have been over 15 years old walking down the street looking 8 months pregnant).

The black males impregnate girls and do not take responsibility for raising their children. Drugs are rampant and represent the major commerce in West Philly. You can anticipate at least one shooting per night in West Philly. Over 70% of the working age population of West Philly are not working. Why work when the government sends you money? The welfare state (aka socialism) always leads to this result.

So what does the corrupt left wing mayor of Philadelphia propose to cure the ills of the poor in West Philly? A sugar tax. This is how dishonest liberal politicians operate. Not only does mayor Kenney look like a long beaked doo doo bird, he has an IQ on the same level. His bait and switch lies to get his sugar tax passed by an all Democrat city council have been outrageous and disingenuous. His propaganda campaign said he was going to save the children from dangerous sugary drinks and use all the tax proceeds to fund pre-K and recreation centers for the kids.

It's always for the kids. Except it was all a lie. The two faced thieving bastard voted against the very same tax as a city councilman when the previous corrupt incompetent mayor proposed a soda tax.

Sugar Tax

The minds of liberals are not rational or honest. It was sold to the public as a sugar tax with all proceeds going to the children to make them smart. Philly already spends $12,000 per kid per year and they matriculate functionally illiterate morons into society, if they even graduate.

Kenney and his minions actually expect you to believe spending another $1,000 per kid will make them smart. The stupid - it burns. Kids without concerned involved parents living in a two parent home don't stand a chance. The failure of the black community to provide that setting will keep their spawn ignorant and trapped in poverty. But, Democrats love to use them for new taxes.

Public opinion and the business community was strongly against this new tax. It will result in less business for retailers as prices rise astronomically on their biggest selling beverages. The tax will hurt the poor and ignorant far more than the middle and upper classes. The price of a 2 liter bottle of soda will rise by 50%. The price of a jug of lemonade or ice tea will rise by 66%.

This tax is in addition to the 7% sales tax, already 1% higher than PA (for the kids). The impact of this illegal tax will be borne by the people of West Philly. PA law does not allow localities to impose sales taxes, but Kenney and his band of reverse robin hoods impose this tax on distributors to skirt the PA law.

Just Say No

And now for the best part. At the 11th hour, as Kenney was paying off the various constituents and offering bribes to opponents, he made some slight deviations to his "sugar tax". He extended the tax to diet beverages which have NO SUGAR in them. He sold the tax to the public as a health issue.

Then he obligated over 60% of the tax revenues to the general fund - not to Pre-K or rec centers. The bait and switch was complete. He bought the votes in city council with bribes, going against the will of the citizens. He then earmarked most of the money to paying the gold plated pensions of his government union lackey supporters. The tax passed yesterday.

This is how it rolls in Philly. Corrupt politicians, greedy unions, failing public schools, decaying infrastructure, outrageously high taxes and an ignorant welfare enslaved populace combine to ensure the ultimate bankruptcy of a once fine city. As Kenney and his Democrat brethren continue to suck the citizens dry while feathering their own nests, the $8 billion unfunded pension liability grows ever larger as it swallows up a bigger portion of the budget every year. 

Maybe they should impose a garbage tax or a dog shit tax on the people next year based on the amount of trash and dog shit in front of your hovel. Maybe that would clean up Girard Avenue.

Dog shit and sugar taxes tell you everything you need to know about the corrupt Philly politicians and people living in West Philly. A match made in 30 Blocks of Squalor heaven. There is no solution.

This city is too far gone. The people of West Philly have been indoctrinated into this lifestyle over generations. It will eventually end in tears when the city goes bankrupt and the welfare money dries up. Then it will burn.

Fire in Philly

If you want to take the Admin tour down Girard Avenue, click the link below and go left on Route 30. Tell me I'm lying or exaggerating. And don't miss the mural of black kids playing polo just before 39th Street. Very inspiring to all the ghetto polo players in West Philly.,-75.2122089,3a,75y,151.73h,90t/data=!3m4!1e1!3m2!1sP1kKOswcct_4Oxk-Uo42FA!2e0