Here’s The Contrarian on the current asset bubble we’re in:
The U.S. stock market and U.S. bond market are historically overpriced, and real estate is at the high end of the valuation scale too.
Starting valuations are so poor that seven-year real return forecasts are direr than they were even in 2000 and 2008.
In contrast to past periods of market weakness, bonds are unlikely to offer the same safe haven.
Thus, where can an investor turn in order to enhance their investment allocations and prospective future real returns?
How about the third major asset class, specifically commodities, and commodity equities, which are historically non-correlated and still historically out of favor?
Want another point of view?
OK, let’s recall Permabull Jim Cramer a year ago when the infamous and notorious Dr. “Death” Fauci was still recommending people take cruises:
We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over – and it is very far from ending. Heck, people are just learning these stories on Wall Street, and the more they come to learn, the more they love and own! Most of these companies don’t even have earnings per share, so we won’t have to be constrained by that methodology for quarters to come.
– Jim Cramer, February 29, 2020.
Recall how Cramer did back in 2000 when we saw the last bubble implode
In contrast, GMO says don’t get Cramered – there’s a desert ahead. And this is what they think it looks like:
Bears get rich, bulls, get rich, pigs get slaughtered.
What to do?
Well, The Contrarian says commodities.
Then, there’s always Max who focuses on the explosion in Federal spending from The Party making us all “Venezuelans”. Which makes sense since The Party aligns with Venezuela.
That means more hard assets immediately and hope your real estate appreciation outpaces food inflation.
“Our Press and our schools cultivate Chauvinism, militarism, dogmatism, conformism and ignorance. The arbitrary power of the Government is unlimited, and unexampled in history; freedom of the Press, of opinion and of movement are as thoroughly exterminated as though the proclamation of the Rights of Man had never been. We have built up the most gigantic police apparatus, with informers made a national institution, and the most refined scientific system of political and mental torture. We whip the groaning masses of the country towards a theoretical future happiness, which only we can.”
“I am beyond their timid lying morality, and so I am beyond caring.” — Captain Willard, “Apocalypse Now“
Z-Man in Taki:
The grandees of official Washington, of course, will be celebrating. Their long nightmare has finally come to an end. Donald Trump has been evicted from their presence. For four long years—in defense of our democracy, of course—they have labored to get the rightfully elected president removed from office. That day has finally arrived. To put it another way, they will not have Donald Trump to kick around anymore.
The question lurking on the edge of those celebrations is, can they reel back the madness they have unleashed over the past four years? Largely due to their reaction to the 2016 election, they have smashed every institution on which their legitimacy rests. The narrative thread of the past four years has been establishment types corrupting the institutions to undermine the Trump administration.“The narrative thread of the past four years has been establishment types corrupting the institutions to undermine the Trump administration.”
As it stands, roughly half the country thinks the election was rigged and that future elections are going to be rigged. It is pretty much impossible to sell the whole democracy thing when half the voters do not trust the voting process. Lost in all the excitement is the fact that Congress has an approval rating of just 15%. The fact that the “people’s house” now sits behind layers of razor wire and is patrolled by the army does not help their image, either.
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The bottom line is, while the ruling class is partying behind their barricades this week, the problems facing them grow worse. It is more than a bit ironic that they have picked now to embrace a siege mentality and bunkerize the Imperial Capital. They have broken the country so thoroughly that the only thing that could possibly unite the people is the shared hatred for the people on the other side of those barricades.
On the same day that China published a much stronger than expected (if largely laughable as we first noted and Michael Pettis subsequently confirmed) GDP print, making China the only major economy to grow in the “year of covid”, China customs data showed that grains imports soared to record highs in 2020 after tight domestic corn supplies pushed prices to multi-year peaks, driving demand for cheaper imports.
To be precise, a record 11.3 million tonnes of imported corn last year – exceeding the annual quota of 7.2 million tonnes.
A first.
Meanwhile, everywhere else, grain prices have exploded by over 60% in the past 6 months…
Dr. Shiva Ayyadurai explains to Arizona legislators that the Dominion Machines Counted Biden Votes as 1.3 Votes and Trump Votes as 0.7 Votes https://www.youtube.com/watch?v=nwHa1pfyJjc
Europe has been taking it on the chin this month pushing up European power and gas prices to their highest levels in years, and record spikes in power markets.
“The current cold spell in the northern hemisphere is paving way for a tighter global gas market throughout the year,” said Massimo Di Odoardo, director of European gas at WoodMac.
If the cold weather persists over the next month, power prices in Germany and the Nordic market could gain as much as 10 per cent because of the hike in demand, said Arne Bergvik, chief analyst at Swedish utility Jamtkraft AB.
The past week showed what the volatility is all about. An 18 per cent jump last Tuesday in the benchmark contract was followed by the biggest plunge ever a day later. Prices moved at least 10 per cent from the five-day average on 66 occasions over the last year, according to ICE Endex.
“We have a completely reversed situation at the start of 2021 compared with a year ago when the weather was mild and wet,” said Bergvik at Jamtkraft. “If the cold and dry weather continues prices should go up.”
The shift towards a colder planet is evident in the current northern hemisphere snowmass which has returned to the 30-year average.
These effects are evident in European natural gas demand for space heating and electric power prices.
Over the past six to eight months, the U.S. has seen perhaps one of the largest migrations of people based on economic and ideological concerns in almost a century. Not since the Great Depression has there been so many Americans relocating in search of a better life. Today, however, those who relocate seem to be largely conservatives and moderates. There is a very good, multifaceted, reason for this.
I think one of the best recent explanations for the conservative migration is visible in the near-180-degree turnaround by New York Governor Andrew Cuomo on his draconian lockdown mandates. All of a sudden, Cuomo has announced that New York simply cannot stay closed any longer and that businesses need to reopen quickly.
With the successful conclusion of the Econo-Bio War of 2020, there is no need for lockdowns anymore. China and their US allies/business partners (The Party and Oligarchs) need to rev things up.
And fast,
Back to Smith:
I don’t believe Cuomo is mending his totalitarian ways, but at least for now, I think he is realizing what most of us in the alternative economic field have been saying for the past year: Blue state economies are dying because they are oppressive and this stifles trade and business.
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On the other side of the country, California is witnessing its own exodus, and it started well before the pandemic struck. In 2019, California saw over 653,000 residents escape the state’s suffocating bureaucracy and high taxes. In 2020, the state has hit its lowest population growth rate in history, even after accounting for babies born. More than 200,000 people left the state than moved in in the past year, and before anyone claims that these people are “liberals” invading red states, even the California media admits they are mostly conservatives seeking to escape the socialist sinkhole.
The election that capped the Econo-Bio War pitted tax consumers/debtors against tax producers/savers. With the help of stuffed ballots – and votes in excess of population in some cases – the tax consumers/debtors won.
That means mo’ debt and taxes.
But what does this mean for leftist states in economic terms? First, a huge loss of tax revenue, and this is dangerous for blue states in particular. California was projecting a $5.6 billion surplus in January of last year, only to face a $54 billion deficit by August. The state’s net tax revenue fell by 42% from March to May year-over-year, far outpacing losses in the rest of the country. Democratic Gov. Gavin Newsom begged Congress for $14 billion in federal aid, claiming that the government has a “moral and ethical obligation to help the states”.
And this seems to be exactly how states like California are surviving, by stealing tax dollars from people in other states that have been more responsible in caring for their economies.
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Furthermore, blue states tend to have the highest levels of unfunded pension liabilities. In other words, their public pension obligations are only partially funded and are suffering a net loss. California, Connecticut and Illinois top the list and the only red state that comes close in terms of percentages is Alaska. Red states top the list in terms of the best funded pensions and the lowest debt per capita.
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The most likely reaction among blue states or the federal government under Biden will be to try to “redistribute” the wealth and stability from red states to blue states. This could happen in the form of stimulus measures that unfairly benefit blue states. The resulting dollar devaluation and price inflation might hit red states harder because they would not be receiving bailouts to offset the higher costs. In the worst-case scenario, in which a full spectrum financial collapse occurs, we may even see the federal government attempt to redistribute production and manufacturing from red states to blue states in the name of “national emergency.”
There could also be an attempt to stop people from moving away from blue states entirely. We have already seen a beta test for this in California, where legislators are attempting to pass a bill which would legally require former residents to continue paying taxes to the state for years after they leave.
Of course, this would lead to severe resistance from conservatives, but that is a discussion for another time. The bottom line is this: the economic and pandemic policies of blue states have failed miserably. Their only option is to see the error of their ways, become fiscally responsible and remove totalitarian lockdown measures, or, attempt to leech success from the red states like parasites. Which one do you think they will choose?
Well, all of that is in the future.
In the present, it’s “party on, Wayne” as “The Party” takes over in DC.
Bootheels on the necks to follow.
“The ideal set up by the Party was something huge, terrible, and glittering—a world of steel and concrete, of monstrous machines and terrifying weapons—a nation of warriors and fanatics, marching forward in perfect unity, all thinking the same thoughts and shouting the same slogans, perpetually working, fighting, triumphing, persecuting—three hundred million people all with the same face.”
The lesson is not that lockdowns made the spread of Covid-19 worse—although the raw evidence might suggest that—but that lockdowns probably didn’t help, and opening up didn’t hurt. This defies common sense. In theory, the spread of an infectious disease ought to be controllable by quarantine. Evidently not in practice, though we are aware of no researcher who understands why not.
We’re not the only researchers to have discovered this statistical relationship. We first published a version of these findings in April, around the same time similar findings appeared in these pages. In July, a publication of the Lancet published research that found similar results looking across countries rather than U.S. states. “A longer time prior to implementation of any lockdown was associated with a lower number of detected cases,” the study concludes. Those findings have now been enhanced by sophisticated measures of actual social distancing, and data from the reopening phase.
There are experimental controls that all this research lacks. There are no observable instances in which there were either total lockdowns or no lockdowns at all. But there’s no escaping the evidence that, at minimum, heavy lockdowns were no more effective than light ones, and that opening up a lot was no more harmful than opening up a little. So where’s the science that would justify the heavy lockdowns many public-health officials are still demanding?
With the evidence we now possess, even the most risk-averse and single-minded public-health officials should hesitate before demanding the next lockdown and causing the next economic recession.
Well, science does eventually catch up on these these.
Bendavid et al. (2021) summarize their investigation as follows: The most restrictive non-pharmaceutical interventions (NPIs) for controlling the spread of COVID-19 are mandatory stay-at-home and business closures. Given the consequences of these policies, it is important to assess their effects. We evaluate the effects on epidemic case growth of more restrictive NPIs (mrNPIs), above and beyond those of less restrictive NPIs (lrNPIs).
Their conclusion: While small benefits cannot be excluded, we do not find significant benefits on case growth of more restrictive NPIs. Similar reductions in case growth may be achievable with less restrictive interventions.
Reference
Bendavid, E., Oh, C., Bhattacharya, J., & Ioannidis, J. P. A. (2021). Assessing mandatory stay-at-home and business closure effects on the spread of COVID-19. European Journal of Clinical Investigation, e13484. https://onlinelibrary.wiley.com/doi/epdf/10.1111/eci.13484
Econophysics2020 
