The Bear’s Lair: Crashes and depressions in 2018

2018 looks to be a jolly year; it has the potential for no less than four kinds of financial disaster: a major “fringe market” crash in crypto-currencies with credit implications, a stock market crash of the old-fashioned kind, a massive bond market crash as yields return to reality and a recession, which Trump-haters no doubt hope will be deep and long. Yet history shows that the four types of disaster need not be connected, and not all need occur simultaneously. For us as investors and participants in the economy, that should be a huge relief. Continue reading

The Bear’s Lair: Escaping government control

Governments and large institutions are becoming increasingly negative on the crypto-currency markets, as they grow to significance within the overall world economy. Yet crypto-currencies are only the tip of the iceberg. Even as modern communications technology has enabled governments to snoop, pry and punish with unprecedented efficiency, so it has brought new means for individuals to render themselves independent of both government and dinosaur large institutions. In the long run, it’s my bet that individuals will win out. Continue reading

The Bear’s Lair: Britain must detach bits from the USE

Germany’s SPD leader Martin Schulz wants a “United States of Europe” by 2025. While his potential coalition partner Angela Merkel quickly disowned this monstrous idea, it is very probably a genuine ambition that just slipped out. For Britain, the few historically educated citizens of which remember the times when Hitler, the Kaiser, Napoleon and Louis XIV attempted to create a United States of Europe, the prospect was chilling. So what can be done to derail this project, or at least to neuter it? Continue reading

The Bear’s Lair: Gross Imaginary Product

In the era of crypto-currencies, I propose a new economic statistic: Gross Imaginary Product. This can be defined as the total output at market prices of all products and services which do not actually exist. Contrary to popular superstition, not all the $350 billion value of crypto-currencies is imaginary; there are some real values there. Conversely, in the physical economy, in California, London, Japan and everywhere that “funny money” has distorted it, there are apparently “real” values that are in truth purely imaginary. Needless to say, GIP has soared in an era of fraud and fantasy like the present, and appears to be at an all-time high. Continue reading

The Bear’s Lair: Triumph of the bureaucrats

The typical form of human government moved from absolute monarchy, to oligarchy, to democracy, but it did not stop there. As government grew, popular control over it declined, while its own bureaucracy became the principal factor determining its direction. We have now reached the stage where to term the result a “democracy” is laughably in error. We have entered the era of the Bureaucrat State, and the mechanisms for restoring popular control are very limited indeed. Continue reading

The Bear’s Lair: Under funny money, we’re all living in Vegas

“True investing is not the same as gambling” said Isabella Kaminska in the Financial Times recently. Yet in today’s world, I’m damned if I can spot the difference. Bonds are a one-way bet to losses, the stock market is at levels it should not have reached until 2075, London real estate is at levels it should never have reached at all, and only crypto-currencies appear to offer sound long-term value. Whatever the differences were between investing and gambling, they have disappeared. That reality has unpleasant implications for our future. Continue reading

The Bear’s Lair: Let’s leave the world economy death spiral

Capitalism requires capital. The process of industrialization is partly one of technological advance, but it is also one of increasing capital use in the economy. But when the return to capital is forced below zero, as in the last decade, the capital base shrinks, the economy misbehaves and productivity declines, in spite of technological wizardry. Thanks to the world’s central banks, that is happening now in every advanced country. The rich world’s economy is thus in a death spiral, and it is not clear what forces can be used to get us out. Continue reading

The Bear’s Lair: Hollowed-out blue chips are the next subprime

Subprime mortgages caused much of the 2008 financial crisis by defaulting in much greater concentrations than the experts expected. The next financial crisis is likely to be caused by a similar disaster that surprises the experts. I have an excellent candidate: Fortune 500 companies that have been repurchasing their shares like maniacs for a decade, and in many cases have left themselves with negative net worth. In a major recession, when their business drops off and their cash flow turns negative, they will only need a breath of adverse wind to default. Like the subprime mortgages, once a few major companies default, the rest, with fragile credit structures, will fall like dominoes. Continue reading

The Bear’s Lair: Keep Engels’ paws off the economy

My much-esteemed ex-colleague Andrew Stuttaford has written several times on the dangers of robotics. He believes that our living standards may come to suffer an “Engels Pause” similar to the impoverishment Friedrich Engels, writing in 1844, saw resulting from the early Industrial Revolution. Having studied that period in my work on Lord Liverpool, I will suggest that Engels was wrong about the Industrial Revolution. I also claim that whatever the unknowable future effects of robotization, we should today be more fearful of not Engels’ Pause but his statist Paws, meddling like an economically illiterate King Kong with the ineffably efficient wealth-optimizing mechanisms of the free market. Continue reading