Category: Uncategorized

Recession: The Economic Puzzle Pieces

Link to video:

Recession: The Economic Puzzle Pieces

Today’s presentation focuses on average hourly earnings, average weekly hours, and real income. These are all metrics that will be analyzed by the National Bureau of Economic Research (NBER), when making their determination as to when the US economy has reached its peak of the expansion and when it has entered into a recession. Consistent with our previous presentations, we take the time to address the business-cycle and simply look at history and current trends to interpret where we find ourselves today, and where we’re likely headed in the near-term. #Recession #Economy #Invest #Money #Debt #FederalReserve #BusinessCycle

The Yield Curve: A Recession Indicator? 10yr v. 2yr UST

Link to video:

The Yield Curve: A Recession Indicator?

We continue to analyze various US yield curves. In today’s presentation we are analyzing the 10 yr and 2 yr US Treasury notes. Back in August of this year (2019), this curve inverted for the first time since the onset of the Great Recession, causing markets to sell-off on the news. Thus signaling that markets give credibility to the yield curve inversion. Will this time be different? – we doubt it, but join us for this presentation and decide for yourself. #Recession #YieldCurve #Economy #InterestRates FederalReserve

The Yield Curve: A Recession Indicator? 10yr v. 3mth UST

Link to Video:

The Yield Curve: A Recession Indicator?

There has been much hype and discussion recently centered around the yield curve and the fact that it has been inverted. This rare signal from the market tends to foreshadow a recession. Kapital Economics is a proponent of an inverted yield curve serving as a recessionary signal. We take the time in this presentation to look at history and allow the data to tell the story. #Recession#YieldCurve#InterestRates#FederalReserve

The Federal Reserve: Pricking Bubbles?

Link to video:

The Federal Reserve: Pricking Bubbles? – Kapital Economics

Continuing with our analysis of the business-cycle and when we’re likely to hit peak expansion and then enter recession, we analyze the Federal Reserve and their actions regarding the Fed Funds Rate. What can we learn by studying the Fed’s actions in determining when we’re likely to find ourselves in recession? Well it appears – quite a lot. This is simply another video in a range of presentation that analyzes various financial and economic variables. #Recession #Economics #Investing #Federal Reserve

US Unemployment: Bottomed Out?

Link to video:

US Unemployment: Bottomed Out? – Kapital Economics

We take a look at the US unemployment figures to see if we can make a determination as to where we currently reside within the business cycle. While unemployment currently rests at multi-decade lows, is this indicative that this history making expansion, is nearing it’s end? That is to say, is this expansion about to hit it’s peak, or perhaps, has it already peaked? These are the questions we examine and we analyze this data to create a range of dates as to when the peak of this current expansion is likely to be determined. This is but one metric utilized in making this determination, however, it is an important figure. #Recession #Economy #Investing

A Letter to the President

Restoring American Prosperity & The American People Deserve Better

17 May 2019

By Alex Karidis

Dear Mr. President,

            I am writing you as both an informed and concerned citizen. While there are many topics to address, the theme of this letter will pertain primarily to the recent breakdown of US/China trade talks, the economy, and the stock market. At the outset Mr. President, I would like to inform you that I voted for you in the 2016 Presidential election. Furthermore, on many issues I am an overall supporter of your goals to rejuvenate this country. Also, while I am only one voice, I do nevertheless adamantly defend you and your administration when it comes to the recent investigation regarding Russian conspiracy allegations. However, despite past and current support in some areas, I have become seriously concerned regarding the aforementioned topics and how both yourself and your administration are handling such topics. Mr. President, I would like to vote for you in 2020, yet you are making it increasingly more difficult to do so daily.

            Mr. President, I applaud you and your administration’s efforts to address global trade imbalances, forced technology transfers, intellectual property theft, and several other concerns. However, I am seriously concerned and upset with the near daily Tweets and statements that are published by either yourself or a member of your administration. In my opinion, this is both a great disservice to the American people and an abuse of your executive powers.

First, this acts as a disservice because the people have been told repeatedly for the past several months that a trade deal between the US and China was forthcoming and that it would be, “historic,” “fantastic,” “great,” and many other adjectives describing the deal. Yet, given recent events, we have now learned that we are not close to a deal and in fact, both sides are now escalating – currently in the form of additional and/or increased tariffs. This is a disservice Mr. President because the country looks to you for leadership – making promises and using language that makes people believe that a deal was supposed to be agreed a couple of months ago begins to call into question your credibility. If your credibility is called into question sir, not simply by those who already oppose you, but rather those, such as myself who voted for you, then so does your ability to lead and to succeed. It also calls into question my ability and desire to vote for you once again. I understand and appreciate the strategy, tactics, and nature of negotiations. However, in this regard, giving people simple Tweets and talking points of “great” outcomes for months and then falling short calls into question your credibility and that of your administration. Furthermore, if this is an attempt on your behalf to be “transparent,” this argument falls on its face. Publishing statements and Tweets is not transparency, it is more akin to government talking points and shall I even say, propaganda. I do not expect you to provide the inner workings of the trade negotiations as they are in progress, nor should you. Yet, neither should you “string-along” the American people with talks of grandeur. Mr. President, I implore you to stop Tweeting, making statements, and/or sending a member of your administration out to the media to continue with the narrative that everything is “great.” This is a disservice and the American people deserve better.

Regarding the economy, the stock market, and statements/Tweets, this too serves as a great disservice to the country. Continually telling the American people that China is paying for the tariffs is a factually inaccurate statement. Claiming that China is filling the US Treasury with tens of billions of dollars is also inaccurate. The only thing that stops me short of calling this a lie, Mr. President is whether you know the truth in this matter. Therefore, we are left with two options – you are either lying to the American people or you are incompetent in understanding tariffs? Either is unacceptable. While China may very well end up losing business due to the higher costs of products associated with the implementation of tariffs, this is not the definition of “paying” that you are insinuating to the American people. Further, just this last weekend, your own Economic Advisor, Larry Kudlow, had to finally admit that it is American businesses and consumers who will be paying for the tariffs. I would have to imagine Mr. President that Mr. Kudlow deviated from your message because Mr. Kudlow was concerned about his credibility on the matter, and again sir, I stress that you too should be concerned on the state of your credibility. In addition, while the mechanics of tariffs is not hard to understand, we nevertheless live in a society where economic literacy is poor at best – how else can one reason as to why our national debt is $22 trillion and counting amongst a whole host of poor and flawed economic policies. Therefore, Mr. President, spreading misinformation on whom is paying the tariffs is a disservice and the American people deserve better.

Continuing with how this affects the economy, the stock market, and how this ties into an abuse of your executive powers, allow me to first address another concern. I honestly believe Mr. President that you made a grave blunder when it comes to your taking credit and ownership of the US economy and stock market. You were elected Mr. President, in my view, to go to Washington DC to do your best to undo generations of nepotism, fraud, corruption, governmental abuses of power, burdensome and anti-competitive regulations, remedy our two-tiered “justice” system that protects the well-connected, negotiate/renegotiate trade deals and treaties, and a number of other concerns. In short, you were elected to shake things up and to “Drain the Swamp,” if you will. This is not an easy task and I again applaud you and your administration’s efforts and successes in some areas, especially given the backdrop of how politically divisive our country is today. Nevertheless, it was a flaw to take ownership of the economy and the stock market because it limits your abilities and creates an area of vulnerability for counterparties or even outright “enemies” to exploit. In my opinion Mr. President, it would have been much more prudent to acknowledge that you were sent to Washington DC to restore American idealism, free-market capitalism, and to “Drain the Swamp.” You could have informed the American people that this is going to be a long and arduous journey, but we are Americans, we are the United States of America, this is our country, this is our future, and together, we will be successful. In agreement with this, you could have stated that the economy will perform however the economy may perform – perhaps we will have 3% plus GDP growth or perhaps only 1%. The stock market may appreciate our efforts and results and it may make new highs or it may correct. Whichever is the case being fine, because what we are doing as an administration and as a country is worth the cost of restoring American prosperity. I truly believe Mr. President that had this been your message, that the American people would support you in greater numbers and would believe in your credibility. Typical politicians want to take credit for the economy and the performance of the stock market (if it is good). You, sir, were not elected to be a typical politician. This is a disservice and the American people deserve better.

In addition, the record is clear from your statements and Tweets, as citizen and/or candidate Donald J. Trump that during the Obama administration, the economy and the stock market were in a bubble, government figures were bloated, and that the Federal Reserve and the policies of low interest rates and quantitative easing were devastating to middle class Americans, fueled the bubble, and only served to benefit the wealthy. I do not demonize wealth, unless it was obtained fraudulently, and what the Federal Reserve has done over the past decade was fraudulent and criminal and I agreed with your statements as a candidate – one of the key reasons why you received my vote. Now, we are well within your four-year Presidential term, the economic numbers from the government remain bloated and artificial, most of any “growth” we have witnessed has been at the expense of near trillion-dollar deficits and thus an increase in the national debt. It is not coming from a “stronger” consumer who is all but tapped out with rising use of credit cards to fill their personal spending gaps, which is evidenced by rising credit card debt, student loan, and auto loan delinquencies and defaults. A slowing in capital expenditures as tax cuts and repatriations have gone primarily to stock buybacks and thus executive compensation as opposed to investment and hiring. Also, a widening of our trade deficits, implying that we are not winning these trade negotiations and continue to import well more than we export – thus serving as a drag to GDP. In short, Mr. President, this economy is not the greatest in US history, our stock market indices have been and continue to be in bubble territory, our government figures remain bloated and artificial, and over the past couple of months, we have witnessed statements from you and your administration calling on the Federal Reserve to cut interest rates and to embark on what would be classified as QE4. If the economy is as “great” as you claim, then it would not need stimulus measures such as lower interest rates. It would also most definitely not need QE4, which is an “emergency” measure, which also happens to be deeply flawed and will serve the interests of the wealthy at the expense of the many. This is the exact point you made repeatedly prior to becoming the President. Now in office, you claim title to “great” government economic numbers, stock market indices that remain bubbles, and call for further “stimulus” from the Federal Reserve. This sounds like a typical politician sir, and you were not elected to be a typical politician. These actions and statements are a disservice and the American people deserve better.

Mr. President, your seeming fascination with the economic figures and stock market performance in and of itself is a disservice. Given my prior statements, it appears you simply want to keep this economy and these markets propped up to serve a political narrative as opposed to a fundamental narrative of restoring American prosperity. Being in the midst of a trade dispute does not helps matters either. This take us back to your personal Tweets, statements, and those made by members of your administration. Since Q4 of 2018, we have witnessed calls for more Federal Reserve intervention and continual mumblings of near-term success regarding an “historic” and “great” deal with the Chinese. While the Federal Reserve remains in “wait-and-see” mode, the Tweets and statements have been nearly non-stop. Given your fascination with the stock market Mr. President, your near daily Tweets and statements regarding trade negotiations in my opinion, is an abuse of your executive powers. You know perfectly well sir, that when you make a statement, the markets move. There is plenty of enough evidence to make this case – if it is “positive” news, such as talks are going well and they are “constructive,” the markets rally. Likewise, what we have just witnessed, from a Tweet regarding, “talks taking too long” and that the US must increase tariffs, the markets have sold-off aggressively. Additionally, if the markets are in a “down-day,” either you or a member of your administration makes a positive statement about trade negotiations and lo-and-behold, the markets reverse course and gain. The combined market gains and losses over the last several months amounts to trillions of dollars’ worth of value, gained/lost, in global equities. If this is not an abuse of power, then I do not know what is. I truly hope Mr. President that neither you, your family, a friend, or a friend of a friend is benefitting and profiting from having knowledge of your Tweets prior to being made public or anything of the kind. This would be an egregious abuse of power and would warrant investigation. The powers vested in you, Mr. President, are granted to you by the consent of the American people. You are not a leader with dictatorial powers, and you are most definitely not a global financial dictator who should have the power to move global markets, but from a brief paragraph on social media. In fact, this country was founded on creating limited government powers and our Founders wanted a leader of the executive branch whose powers were also to be limited. Further, we were informed during your State of the Union Address that this country will never be a socialist nation. Yet, just recently, you are once again making statements applauding China’s use of stimulus measures (i.e. lower interest rates and their version of QE), while at the same time calling on our central bank to employ the same policies. Taking the lead from a Communist regime is not fitting with your State of the Union Address, sir. Nor is it fitting with your comments as citizen and candidate Donald J. Trump. Most of the concerns that I believe you have about this economy and our stock markets are self-inflicted Mr. President, because you took title to both. I believe what we are witnessing, is your attempt to find someone to blame, when the economy and/or stock market deteriorates. You will blame endless wars, political divisiveness, continual investigations by the Democrats, the Federal Reserve, and China. Yet, over the course of your administration, you have taken credit for all the “good” to “great” figures. Taking credit for the positive and blaming others for the negative is poor leadership in my opinion Mr. President and is consistent with the kind of leadership or lack thereof that the people of this country have grown tired and frustrated from witnessing and enduring. You were elected to be a different kind of politician. In addition and in agreement with recent statements, you are giving your critics more fire-power by proving them correct when they say you have a “casual relationship” with the truth to put it mildly; and that you are known to “inflate” your personal net-worth and that of your organization; well calling on the Federal Reserve to lower interest rates and embark on QE4, is inflation by definition; and statements around trade negotiations and tariffs is a “casual relationship” with the truth at best. It currently appears from recent behavior that you are unfortunately – a new boss, same as the old boss. This is a disservice and the American people deserve better.

Despite these critiques, I am still looking for reasons to vote for you again in 2020 because I understand the challenges you are up against, but this does not provide you with an excuse for such behaviors herein outlined. However, on a daily basis, with the Tweets, the exaggerations, hyperbole, and flat out lies, you are making it very difficult for me to cast my vote for you for a second time. The Democrats offer little, if any, fundamental change of a positive kind and their policies will prove detrimental to this country. This country needs a leader Mr. President, not another typical politician. The American people have placed great confidence and trust in you and your administration to do the work of the people to restore American prosperity. I know this is not an easy task and I once again applaud you on your efforts and successes in certain areas. However, we are far from the finish line and the work will extend long past your term(s) as our President. My thoughts and prayers are with you, your family, your administration, and the American people. Tell the truth Mr. President, put aside the ego and boastfulness around the economy and the stock market, and restore American prosperity. I guarantee you the American people will make the requisite sacrifices to secure their future, their families’, and their country’s – they just need true leadership.

Most respectfully submitted,

In Liberty,

Godspeed,

Alex M. Karidis

The Kapital News

Why Do We Fear Recessions?

09 April 2019

By Alex Karidis

If you’ve been listening to the news lately, particularly the financial media, you’ve likely heard the “R” word getting thrown around. What has triggered this has been a myriad of items, such as the 2018 Q4 stock market correction/bear market, slowing global economic growth, trade concerns, political hang-ups, such as Brexit, central banks becoming more dovish, despite only a few months ago, several announced their intentions to “normalize” interest rates, 2019 Q1 earnings and guidance upon us, and while there are several other reasons, the one that has gripped the most attention as of late has been the inverted yield curve.

Don’t let the name intimidate you, this simply means that shorter-term Treasuries are yielding more than longer-term Treasuries. In this instance, the markets are most concerned with the difference between the 10-year and 3-month Treasuries. Typically, longer-term durations will offer higher yields in order to compensate the investor/creditor for the increased risk(s) of sending his money away for 10 years as opposed to 3 months. This makes intuitive sense as interest rates or yields provide the markets with information and in this instance, a yield curve inversion is noteworthy because this does not happen often.

Inversion translates into a negative value (ex. 10-year minus 3-month, 2.4 – 2.55 = -0.15%). For this phenomenon to occur, a couple of activities or a combination thereof must occur. Recall that interest rates provide us with information, so if shorter-term notes are offering higher yields than their longer-term counterparts then markets are telling us that they see greater near-term risks. As such, in order to be compensated for this increase in risk, the investor/creditor requires a higher pay-off. Another way of looking at it, since bond prices and yields are inversely related, would be to say that there is an increase in demand for longer-term notes and less demand for shorter-term notes. So, an increase in 10-year bond purchases and an increase in the selling of 3-month notes. Again, the reason why this does not occur frequently is because in most situations, markets are more concerned with longer-term risks relative to near-term risks and thus we typically witness a positive yield curve. It’s easier to predict overall market conditions a few months to one year from now as opposed to 10 years out, makes sense, right? So, when we witness a yield curve inversion, we must pay attention. This is because the markets are signaling that near-term risks outweigh the longer-term, which may very well imply that a recession is on the horizon.

In fact, if we look at the data, an inverted yield curve has proven to be a very reliable leading indicator of future recessions. If you follow The Kapital News Podcast, you know well how we speak about the “economic puzzle” and how it’s our job to put the pieces together. Now while one individual piece does not paint the entire picture, the yield curve is a central element. Listening to the mainstream media, many pundits and analysts will tell you that the yield curve is “archaic” and that “this time is different.” When you hear these comments, especially the latter, you must know that this time is never different. It is wishful thinking that a recession is not on the horizon and that markets are fine and if the stock market is in a bull-market run, then it will continue. Just like the college frat-boy never wants the party to end, so too is the thinking of many market participants and analysts. However, all parties come to an end, and believe us, this time ain’t different! In fact, what lies ahead may prove to be the worse correction we’ve seen in a very long time, if ever. This is not said to frighten you, but rather for the purpose of providing information and preparation. The Kapital News is not a “perma-bear” news outlet nor a “doom and gloomer.” Rather, we provide our honest analysis wherever the data may lead. This segues nicely into the topic of this article – Why Do We Fear Recessions?

We find this to be a timely discussion and a well-placed question. While the word recession may invite several emotional responses, we must remember that the word correction is synonymous with recession. Therefore, why should we fear a correction? Aren’t corrections supposed to be good things? This applies to virtually all things in life. Imagine the following examples, recall when you were a child and you were learning to play an instrument or a sport. Clearly from the beginning, (unless you’re a prodigy), you stumbled along the way and probably quite frequently as you learned the fundamentals of the instrument or sport. Yet, as you made those errors, you were most likely corrected by an instructor, a coach, or your parents in order to help you get better. In fact, another way of looking at those errors is not as errors, but rather as learning experiences. It’s just as important to know what to do as it is to know what not to do. Now while we may become irritated and frustrated during our journey and may even seriously contemplate quitting the world of music or this new game, these emotions are no true reason to call it a-quits. And most definitely not a reason to fear the saxophone or a baseball glove.

In the world of music, no one sounded like Louis Armstrong the first time they picked up the trumpet. Likewise, no one hit the ball like Babe Ruth the first time they swung a baseball bat. Now consider the fact that neither of these titans of their respective industries were great on their first try either. It took time. It took patience. It took perseverance. It took humbling mistake after humbling mistake. And with it, yes, it took correction. Even to this day we admire the musical and entertaining talent of Louis Armstrong and still compare baseball statistics to Babe Ruth. For those of us who love music and sports, can you imagine a world without these two men and their contributions to their fields? They like all of us had their struggles, but they never gave up and never gave in to their frustrations. Instead, they corrected themselves and the worlds of music and baseball are eternally thankful. Expand this example to the fields of science and mathematics and the contributions of Newton and Einstein. Pick a field, any field, and the same story holds true. Why then would the financial markets and economies be any different?

The answer is, they’re not! What becomes of greater concern are the social and political risks that are likely to result from a recession. Just like Louis Armstrong, first-time entrepreneurs to the most seasoned of business executives will make mistakes. We are after all, human. From these mistakes, entrepreneurs and business executives hopefully learn and correct themselves and their organizations – thus making them better. However, there are times throughout history where some mistakes are just too big, and companies enter bankruptcy or simply close the doors for good. While people losing jobs is not a good thing, especially in the short-term, it will allow for the most effective and efficient allocation of resources – primarily that of capital and labor.

Ask yourself a simple question, if someone is a bad business manager, why would you want him to remain in business as a decision-maker? Perhaps he would be better suited in a different position. Even with time, he may become a great manager, but at this time, he is not. If we are to truly exist within a free-market capitalistic system, then failure is the greatest regulator, it may also be a great teacher. It happens to be an assortment of failures occurring in harmony that creates a recession. These failures occur for several reasons, but they can be attributed to business managers in some sense. They made the wrong decisions. They took too big of a risk or too many risks and they did not pay out well. We may applaud the risk-taking, but we must also criticize and learn from the mistakes.

The markets are concerned with goods and services being produced as efficiently and effectively as possible. And remember, markets can only produce what the markets want – otherwise somebody is going out of business. The producer wants to increase productivity, reduce costs, and beat their competitors on price, quality, options, etc. The consumer wants options, quality, and lower prices. Therefore, everything appears to be in agreement. However, when a recession occurs, those who are not operating under best-practices will suffer and perhaps go out of business. Again, not great for those immediately affected. However, the market is made better off because, in theory, those who remain are the best performers, and markets always look for and reward the best practitioners. Thus, markets are improved upon.

In a recession, people are concerned with losing their jobs – understandable. However, politicians, central bankers, and business leaders are concerned with being blamed – poor leadership. While this article could continue at length on the many faults that exist within our government, our central bank, and many of our crony-corporations, we will save this analysis for another time. Suffice to say, that those institutions are ripe to be blamed, yet we the people should not fear recessions, as we are made better consequently. Might it be painful and frustrating? – yes. But we’re not in first grade anymore. We don’t get stickers of stars on the wall and lollipops just for showing up. We need to get better in all that we do and to learn from our mistakes and to correct ourselves and to help each other. We must look at recessions, not as a problem unto itself, but rather as an opportunity to correct ourselves as individuals, as citizens and taxpayers, as employees and employers, as governments, as businesses, and on the other side, we’ll be that much better. We should be more concerned with how governments and central banks (typically the primary cause of recessions), come in to “save the day.” They caused the problem and we can assure you that they do not have the solutions. It’s as if they broke our legs and we’re supposed to thank them because they gave us a pair of crutches.

We should not fear failure. We should not fear getting better. We should not fear correcting ourselves and our institutions. We should not fear success. And we should not fear recessions.  

Campaign 2020 + Healthcare is a Right: Nope!

March 4, 2019

By Alex Karidis

As we enter the 2020 Presidential campaign, there is a constant theme that is likely to resonate throughout its entirety – healthcare is a right and must be provided by the government. First off, healthcare is not a right. Secondly, it should most definitely not be provided by the government. Yet despite what seems rather common sensical to The Kapital News, this message somehow resonates very strongly with millions of Americans. Well it’s free they say! (Massive eye-roll, seriously?!)

            The 2020 Presidential line-up on the Democrat side already has its cast of characters. From Pocahontas to Spartacus to Democratic Socialists, there’s surely someone for everybody to like, especially when they offer so much FREE stuff! However, anyone who is honest with themselves knows that nothing is free and when politicians claim it will be free, it will surely be both unaffordable and unsustainable. So, while the likes of Senators Elizabeth Warren, Cory Booker, Kamala Harris, and Bernie Sanders are all jockeying for position to be the biggest giver of FREE stuff, perhaps an initial discussion on whether healthcare is a right and should be provided by the government should be addressed? We think that’s appropriate, so here we go.

            First, while this may be more about semantics, it’s important to note the difference between healthcare and medical care. Healthcare in our opinion is about your personal health and has more to do with your diet, eating habits, and exercise routine, or lack thereof. Surely you are in complete control of these variables as no one is preventing you from eating your fruits and veggies, and if you want to do some push-up and sit-ups, get to it! There isn’t anyone who will tell you that eating healthy and exercising daily is bad for your health – so we should all be on the same page so far. Now onto medical care. This is better defined as the counsel and treatment one receives from a doctor, nurse, pharmacist, technician, etc. Their goal along with that of the individual should be the same – to stay healthy and/or to become healthier. With their educational and professional training, these experts can provide remedies, make suggestions, and perform procedures to assist with making you healthier. This too should all be common sensical. However, in the latter, you are placing your trust and confidence in the opinion of these experts. Therefore, you are not 100% in control of their decision(s) or suggestion(s), but you can 100% choose to accept or decline their treatment. We go to these professionals for their advice and treatment. This then means, that these individuals are offering their labor, which is a service, in exchange for a fee. We do not have the right to someone’s labor, period! We’ll touch on this later.  

            So where is the real difference and why does all this need to be considered a right and provided for by the government? Firstly, you are pretty much 100% in control of your health regarding your dietary choices and exercise routines. All else equal, someone who eats healthy and exercises regularly is in better health than those who do not. Therefore, unless they suffer from some genetic disorder or suffer an accident or injury, their interactions with medical professionals will be minimal. Counter this with someone who does not eat healthy nor exercises and the likelihood of needing medical attention increases. This is especially true as on ages. Again, common sensical.

We now enter into our first argument: why should those who eat healthy and exercise must pay and subsidize the poor decision-making of those who do not? Aren’t good deeds to be rewarded? Not only in the form of a healthier life, but more of your hard-earned dollars to remain in your pocket because you’re not spending them on doctor’s and hospital bills? We shout out a resounding, YES! Yet, the 2020 Democrat Presidential candidates, say otherwise. In fact, they need more people to eat their broccoli and exercise for this FREE program to last longer than a month from a funding standpoint. Of course, this program is “Medicare For All.” However, what this program is more likely to encourage is more poor health habits as opposed to better. This is because poor decisions are being subsidized by the government – which really means your tax dollars. It’s the path of least resistance to eat processed food out of a box and just lie around, and with Medicare for All, who cares if you need medical treatment, it’s covered. Thanks Pocahontas, Spartacus, and Crazy Bernie – you economic policy geniuses.

Therefore, insurance markets make the most sense and not FREE government programs. Insurance is in the business of managing risks and pricing their policies accordingly. In our above example, the person who eats healthy and exercises, all else equal will pay a lower monthly premium. While the unhealthier individual will pay a higher monthly premium. Why? Because they are a higher risk. This is plain and simple and makes complete sense. If you’re unhealthy, you’re more likely to need more medical attention and thus incur higher costs relative to a healthier person. Therefore, the insurance company requires a higher premium to be compensated for the increase in risk. Free-market: Want a lower premium – get healthier. Government: It’s FREE, do what you want. Insurance companies are not charities. They are in business to make money and to remain in business. Let it also be known that government is not a charity either. However, politicians love being charitable with other peoples’ money. This is not the role of government. Simply look at the obesity epidemic in the USA or the drug and opioid crisis. Should the choices made by these individuals to either exhibit an unhealthy lifestyle and/or engage in drug use be subsidized by those who do not? If people want to contribute to these individuals’ medical bills, they can do so voluntarily either by giving them their money directly or indirectly via a charity. This is a stark distinction. Charity is voluntary and government is force – it is mandated. What part of this do people not understand?

We can rack our brains by going through the numbers that are in the trillions of dollars by the way, regarding government’s involvement in the medical care arena. However, we will save these statistics for another time. Clearly, at this point, we have demonstrated that no one has the RIGHT to someone else’s labor. The exchange of a service for a fee is a voluntary transaction. There’s that voluntary word again. No one should be forced or mandated to provide a service. Isn’t forced labor considered slavery? Still want to vote for this “Socialist Utopia?”

Let’s look at it this way. Say we have an older doctor, still very much capable of performing his duties. However, he is older and can retire, but he would rather continue with his practice. In our example, let’s say this doctor wants to continue with his practice, but wants to cut back on office hours, cut down on his current patient list, and as such, does not want to see any new patients. If the government makes medical care a right, what does this mean? Will this doctor have the ability to turn potential patients away? The government wants to be in the business of telling insurance companies that they cannot deny coverage to people, so would the same hold true in this instance? Afterall they say, it is a right and so how can your rights be denied? Now what is this doctor to do? If he is forced/mandated to take all patients who call for an appointment, he is likely to just retire. Great, now we’ve just lost the supply of a doctor. This will translate into higher costs and longer wait times, because now his current patients will have to go elsewhere in a market with fewer doctors because this one just retired. So much for FREE and containing costs.

This hits on another important point, if the government gets involved, they have a fiduciary duty to manage the people’s money as best as possible. Will this translate into attempting to control how much doctors can be paid? What happens if they set a family doctor’s salary below that which the market would pay? Oh, yeah that’s right, you won’t have family doctor’s or there will be fewer of them than otherwise would’ve been the case. The result: longer wait times. Don’t you just love these Socialist policies?!  

Lastly, there is no denying that we have the right to free speech, peaceful assembly, the press, basically the First Amendment is not in question. Yet, if you want to peacefully protest, do you go to a government office and ask for money so you can go buy a big sign for your protest rally? NO! Do you go to a government office to get a check because you want to build the next media empire? NO! What about your Second Amendment right to bear arms? Do you go to a government office and demand money so you can go buy a .45 pistol and an AK-47, and ammunition? NO! Rights do NOT translate into payments by the government to you. If one of these Socialist Presidential contenders should take the time to read the US Constitution, they would understand that our rights have to do with limiting the government and restricting their ability to toil in our lives as we seek our own personal successes and happiness. If the government gets even more involved in a sector that comprises 17% of our country’s GDP, how exactly is that limiting their powers? Quite the contrary as it gives them near total control of you, as what is more personal than one’s health? It must be understood that our Founding Fathers claimed that our rights came from our Creator, our God, because it’s based in the following idea: That which God giveth, man cannot taketh away. Recall we fought not just the British in the American Revolutionary War, but the broader idea of control from and by governments. History shows us that world leaders have likened themselves to god-kings and earthly-gods with unlimited power. The United States of America was founded fighting this tyrannical belief. Instead saying that the many – you, the individual, is sovereign and by the consent of the people, they shall be governed. Let us not devolve into such Socialist beliefs and the atrocities that surely await us on the other side. Healthcare is NOT a right.

What Americans Are You Speaking of Chairman Powell?

5 February 2019

By Alex Karidis

It was only a couple of weeks ago that the Chairman of the Federal Reserve gave his scheduled press conference following the Federal Open Market Committee’s (FOMC), meeting. As was broadly anticipated by the markets, the Fed decided to take a “wait-and-see” approach to the overall economy and thus the committee’s actions regarding interest rates and the Fed’s balance sheet. The stance on being patient was most welcomed by market participants. It is the opinion of The Kapital News that the market is akin to a drug addict and the Fed – the drug dealer.

            Only a couple of months ago, the major indices of the US markets entered correction territory as defined by a 10% decline. This was then followed by a further decline that put these indices in bear market territory or reaching a 20% decline. Well it should have came as no surprise that the addicts, coming down from their highs, would throw a tantrum, a hissy-fit, whatever you want to say, to get the attention of their dealer – they sure succeeded! Not only did the Fed come under pressure from the markets, but also from President Trump. There were immediate calls for the Fed to reverse course or at least stop what they’re currently doing. So, what is or was the Fed doing?

            For well over a year, the Fed has been discussing increasing the Effective Federal Funds Rate from its extreme policy of low interest rates coupled with quantitative easing (QE). This interest rate is used by banks for overnight lending purposes. Banks with excess reserves will lend money to banks in need of additional liquidity in order to satisfy their daily reserve requirements. This rate has been zero-bound since 2008 during the financial crisis. This also went by the term ZIRP or Zero Interest Rate Policy for those “in-the-know.” It has gradually been increasing and we stress the word gradually, for the past couple of years. It currently stands at 2.27%. Even though the Fed has been broadcasting for some time now that it intended to “normalize” interest rates as well as to continue to reduce the size of its balance sheet – the markets declined rapidly during Q4 of 2018.

            This now raises serious questions for the broader economy at large and the financial markets. What credibility does the Fed have? Will the Fed do a 180 and cut rates and embark on a new leg of QE? If the economy is so vibrant, then why do minute interest rate increases of 25 basis points negatively shock the markets and economy? If the economy is so strong, then why is the Federal government running near $1 trillion deficits? These questions need to be asked and they need to be answered!

            With respect to their credibility – it is the opinion of this author that they have NONE!!! We’re supposed to believe that a team of 200 PhD economists at the Fed, in addition to any analyst the Fed wants input from, that they all got it wrong?! They broadcast that the economy is doing well and thus it is appropriate to increase rates and continue with their balance sheet run-off and then BAM, markets decline, the economy is now not so vibrant, and the global economy is suddenly slowing. They didn’t see this coming?! What the hell are they looking at?! Or does it become more of a question between who does the Fed work for, which leads to the title of this article.

            During his press conference, Chairman Powell made it clear that the Fed works for the American people. This commentary simply asks, What Americans, Mr. Powell? In our recent podcast, A Stock Market Divided Cannot Stand, we stated that the Fed is not helping Americans who are attempting to save. With low interest rates, savers are not earning any interest on what savings they may have. This has been true for a decade of significantly flawed monetary policy. Economies are not built on the backs of over extended consumers and over leveraged banks and corporations, but rather on the savings and investments of market participants. We continued with older Americans and how many of them live on fixed-incomes, and in some instances, a very-fixed income. The mechanics of QE is by definition an inflation generating process. Once this liquidity makes its way through the economy, the effects of this inflation (money-printing) are felt. This has adverse effects, especially on older Americans on fixed incomes as their cost of living outstrips their rise in income – should they even experience an increase to their incomes.

Their policies of ZIRP and QE are fundamentally flawed for middle income and lower income Americans. Yet how have these policies faired for the wealthy, corporations, banks, and the government? Well you guessed it – they have done extremely well! The markets have reached new all-time highs and given the wait-and-see stance by the Fed, they may make even greater highs this year. The wealthy who own the majority of financial assets – stocks, bonds, real estate, have seen tremendous gains to their portfolios and net worth. This author does not demonize success, for he is an ardent proponent of free market capitalism. Yet, money printing is not capitalism! Therefore, these gains to the wealthy, the corporations, and the banks have come at the expense of middle- and lower-income Americans. Corporations have used this funny-money to engage in financial engineering never seen. One such activity relates to share buybacks. The amount of share buybacks has gone to increase earnings artificially as opposed to organically, since some of this activity has occurred due to access to cheap money. The same holds true for the increasing of dividends and leveraged loans, which are loans that will be used to pay-off other loans. Many of these financial gimmicks can translate into higher stock prices – and they have. This then translates into higher compensation for C-suite executives as their earnings may be tied to stock price performance. Starting to get the picture?

Now onto how the government benefits. The US government’s stated national debt is nearing $22 trillion. This does not include the unfunded liabilities that increase this number several times. If one were to look at the amount the US pays on interest payments alone, which is over $300 billion per annum, one must then ask, how much longer can this be sustained? Well, so long as the Fed keeps interest rates low and/or returns to another round of QE, which is the Fed purchasing Treasuries, then Uncle Sam may be able to keep this charade going. However, if the Fed were truly concerned with macro-events, then they should be ringing the alarm bells telling Congress and the President that this is unsustainable and public finances must be dealt with. They do not do this because this would require someone to be an adult in the room and to stand up and be a true leader. We do not have such leaders in our current government nor have we for many years. The problem this creates is two-fold. First, it continues to kick the proverbial can down the road and thus these problems will only get worse and that much more difficult to resolve. Secondly, there does not appear to be any concern that interest rates may take on a mind of their own. In other words, markets may look at the financial health of the federal budget, or lack thereof, and say, in order to lend money to Uncle Sam, we’re going to need a higher return. Therefore, despite the efforts by the Fed, they may one day soon fall on deaf ears. When one looks at Treasury rates, especially the 10-year Treasury, it must be understood that many other rates, such as mortgages are closely linked. If rates were to rise either by decree from the Fed, or worse by the market, the downstream effects will make 2008-2009 look like a walk in the park. If rates remain low and/or the Fed should do a 180 and lower rates and/or embark on a new round of QE, these problems will only get pushed further down the road. Once these debts come due, this too will make 2008-2009 look like a walk in the park. Damned if we do and damned if we don’t – great going Fed.

We have done this to ourselves. Living beyond our means and not holding ourselves and our political leaders accountable has serious and significant costs. Soon, we’ll all be paying the price one way or the other. A return to free market capitalism is the solution, yet the common voices and the loudest voices call for policies quite the contrary. The United States should have the best economy in absolute terms, not in relative terms – the best-looking girl at the dance isn’t good enough. It’s time to wake up and demand change or we’ll be awoken from a nightmare only to realize, we’re not dreaming.