BEIJING (Reuters) – Salaries of executives at China’s largest state-owned enterprises (SOEs) will be directly linked to their performance on tests by the ruling Communist Party to assess their “party building” efforts, state media said on Tuesday.
UK government poised to sell final 2% stake in pivotal moment for bailed-out lender
This was a holiday-shorted week, due to Good Friday, and we are posting this Monday evening due to today being a holiday in much of the world.
Gold and silver went up the dollar went down, +$33 and +$0.53 -64mg gold and -.05g silver. The prices of the metals in dollar terms are readily available, and the price of the dollar in terms of honest money can be easily calculated. The point of this Report is to look into the market to understand the fundamentals of supply and demand. This can’t necessarily tell you what the price will do tomorrow. However, it tells you where the price should be, if physical metal were to clear based on supply and demand.
Of course, two factors make this very interesting. One is that the speculators use leverage, and they can move the price around. At least for a while. The other is that the fundamentals change. There is no guarantee that the prices of the metals will reach the fundamental price of a given day. Think of the fundamentals as gravity, not the strongest force in the system but inexorable, tugging every day.
This week, the fundamentals of both metals moved, though not together. We will take a look at that below, but first, the price and ratio charts.
The Prices of Gold and Silver
Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It didn’t move much this week.
The Ratio of the Gold Price to the Silver Price
For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.
Here is the gold graph.
The Gold Basis and Cobasis and the Dollar Price
The scarcity (i.e. the cobasis, the red line) is in a gentle rising trend for about six months. This week, the cobasis was down slightly. Not a surprise given the (relatively) big price move of +$33. Nor does it appear to break the trend.
Our calculated fundamental price of gold is at $1,301, just above the market price.
Now let’s look at silver.
The Silver Basis and Cobasis and the Dollar Price
In silver, it’s much harder to say that there is an uptrend in the cobasis. Our indicator of scarcity is at the same level it was in October. Back then, the price of silver was $17.60 and on Thursday it was just about 90 cents higher.
The fundamental price back then was just under $15. Now it’s just under $16.50. This happens to be down about 40 cents this week.
With the fundamental of gold rising, and that of silver falling, it’s not surprising that the fundamental gold-silver ratio is up to a bit over 79.
© 2017 Monetary Metals
Although Plan B includes a wide spectrum of options, these three basic categories define three different purposes for having an alternative residence lined up.
We all have a Plan A–continue living just like we’re living now.
Some of us have a Plan B in case Plan A doesn’t work out, and the reasons for a Plan B break out into three general categories:
1. Preppers who foresee the potential for a breakdown in Plan A due to a systemic “perfect storm” of events that could overwhelm the status quo’s ability to supply healthcare, food and transportation fuels for the nation’s heavily urbanized populace.
2. People who understand their employment is precarious and contingent, and they might have to move to another locale if they lose their job and can’t find another equivalent one quickly.
3. Those who tire of the stresses of maintaining Plan A and who long for a less stressful, less complex, cheaper and more fulfilling way of living.
Many people are unaware of the fragility of the supply chains that truck in food, fuel and all the other commodities of industrialized comfort to cities. As a general rule, there are only a few days of food and fuel in a typical city, and any disruption quickly empties existing stocks. (Those interested in learning more might start with the book When Trucks Stop Running: Energy and the Future of Transportation.)
Most residents may not realize that the government’s emergency services are actually quite limited, and that a relatively small number of casualties/injured people (for example, a few thousand) in an urban area would overwhelm services designed to handle a relative handful of the millions of residents.
Authorities can call up the National Guard to maintain order, but the government isn’t set up to provide food and fuel to millions of people stranded by a natural disaster or a "Black Swan" (unexpected disruption).
To reduce costs, supply chains and other essential systems have been stripped of redundancies–any break in the optimized flow has the potential to cripple the entire system. Since these highly optimized systems work so well most of the time, we don’t really understand the vulnerabilities that lurk just below the surface of "just in time" deliveries and other efficiencies.
This inherent fragility has long fueled interest in rural "bug-out" retreats, a topic I recently addressed in Having A 'Retreat' Property Comes With Real Challenges.
For the past eight years, US politicians and Federal Reserve authorities have attempted to repeal the classic business cycle of growth, stagnation, recession and renewed growth. It may appear they’ve succeeded, but the era’s slow growth has been sustained by unprecedented expansions of debt in the government, corporate and private sectors.
This extraordinary expansion of debt has been enabled by a decline in interest rates. Most observers with a sense of history view these extremes of debt expansion and near-zero interest rates as unsustainable and destabilizing:
In other words, extending the expansion cycle by extreme policy measures cannot actually repeal the business cycle; rather, these policy extremes increase the likelihood that the eventual recession will be deeper and/or longer than it would have been absent the policy extremes.
Thus we can anticipate a recession of some sort, in which mal-investments and unpayable debts are liquidated and written off, and credit expansion (and the consumption that depends on it) slows or even reverses, as it did in the 2008-09 recession.
Employers must lay off employees when sales and profits fall, and as incomes fall, sales fall further, creating a feedback loop of mutually reinforcing declines in household income and spending.
When the music finally stops, many laid-off employees won’t be able to find a chair (i.e. another job). Without a job, most people can’t afford to remain in high-cost urban centers for long.
When the 2000 recession gutted employment in the San Francisco Bay Area, 100,000 people moved away.
Recent immigrants to wealthy metro areas have the option of returning home to the village or town they’d left to seek work in the city. Many immigrants from south of the border have invested their earnings in building new homes in their villages of origin. When the economy north of the Rio Grande falters, they can return to the home they built when their incomes were high.
In China, many of the urban workers laid off in slow periods return to their villages, where there is a source of food (farms) and a roof over their head (the family home).
Today’s "rootless Cosmopolitans" (urban dwelling Americans) typically lack a village they can return to in hard times. So a common Plan B is to seek an equivalent low-cost place to retreat to in recessions.
There’s a simple phrase that embodies the exhaustion and dissatisfaction we experience when we feel like we’re on a treadmill going nowhere that’s speeding up: Burn-out.
As Historian Fernand Braudel (and others) observed, cities have always had a higher cost of living than the countryside—and offered higher pay scales. Cities aggregate capital, talent and power, and while this dynamism serves to raise many out of poverty, it can also exacerbate wealth and income inequality.
The globalization of labor and capital combined with the aforementioned policy extremes has deepened the divide between "haves" and "have-nots" in many urban regions. Those who bought their homes in desirable metro areas for $150,000 are much wealthier now that these modest homes fetch $750,000 or more. Young people with conventional jobs will never be able to afford these home prices, and so the time-honored source of middle-class security–home ownership– is out of reach.
Many of those who dove in and bought a home are stretching to pay crushing mortgages, soaring taxes and higher costs for healthcare and childcare. They are burning out, and their Plan B is a permanent move to a less burdensome and more fulfilling life elsewhere.
Although Plan B includes a wide spectrum of options, these three basic categories define three different purposes for having an alternative residence lined up, and these purposes define three different durations of Plan B occupancy.
While the serious prepper with a "bug-out" Plan B might be planning for the long haul, others will view their "bug-out" Plan B preparations as a temporary arrangement–a place to go in the event of a natural disaster such as an earthquake or hurricane, or localized social unrest.
Such a temporary home-away-from-home could be as simple as an RV parked in the parents' driveway, a spare room in a relative’s house or more elaborately, a storage shed turned into a "tiny house."
Those planning for the eventuality of a much lower income due to recession will have a much different Plan B, as they need dirt-cheap housing for an extended occupancy that might last from a few months to as long as a few years.
The recession Plan B must include planning for childcare/schooling, healthcare, employment/earning a living—all the day-to-day components of Plan A.
The recession Plan B also has to account for the possibility that the return to the Plan A lifestyle will no longer be an option due to health issues, the decline of the sector of employment, or permanent declines in household income.
The burn-out Plan B is intended to be permanent. Plan A is being replaced by a Plan B that must provide the essentials of home, work and community–what I call fully functional residence.
We spend a lot of time writing about public pensions because the aggregate underfunding levels, $3 – $5 trillion on the low end, are simply staggering and at some point they will be realized for the ponzi schemes that they are and the systemic risk they represent to the global financial system. Until then we’ll just keep shouting into the abyss.
And while we don’t spend as much time on corporate pensions, for some companies their underfunded defined benefit obligations will almost certainly result in their demise at some point in the future. As a recent study from Pensions & Investments points out, the top 100 corporate pensions were underfunded by over $250 billion at the end of 2016. Moreover, despite a 250% S&P rally from the 2009 lows, corporate pensions have only managed to improve their funded status from 79.1% in 2008 to 84.5% today.
The aggregate funding deficit for P&I’s universe rose to $258 billion as of Dec. 31, up 5.3% from a deficit of $245 billion the previous year.
The average funding ratio of the 100 largest U.S. corporate defined benefit plans continued to slide in 2016, dropping to 84.5% from 85.1% at the end of 2015 and 85.7% at the end of 2014, Pensions & Investments’ annual analysis of corporate SEC filings shows.
“The big story on DB plan funding is how little it’s recovered from the big downturn in the recession,” said Alan Glickstein, Dallas-based senior retirement consultant at Willis Towers Watson PLC.
The average funding ratio for P&I’s universe was 108.6% at the end of 2007, which plunged to 79.1% at the end of 2008 at the peak of the financial crisis.
Meanwhile, the bottom 10 corporate pension funds alone, as ranked by funded percentage, were underfunded by nearly $70 billion.
And while a $250 billion funding shortfall is significant, at least investors can take some solace in the fact that corporate pensions, unlike their public counterparts, are using somewhat reasonable discount rates to calculate the present value of their future funding obligations. According to P&I, the average corporate pension used a discount rate of 4.39% in 2016…
The average discount rate used to calculate plan liabilities began to decline in 2008, dropping to 4.05% in 2012 from 6.45% in 2008. The average discount rate used by the plans in P&I’s universe was 4.39% in both 2015 and 2016.
…compared to 7.5% for several public pensions like CalPERS in California.
But, it’s no big deal…if public pensions lower their discount rates to force them inline with private corporate assumptions it would only increase net underfundings by $3.5 trillion…no biggie….taxpayers can definitely absorb that.
It’s a double-whammy for the U.S. taxpayer. Bloomberg notes that not only are many Americans writing yet another check to Uncle Sam this tax season, they’re also paying more to have someone handle their returns. The Labor Department’s consumer-price index for tax return preparation rose 2.4 percent, the third-biggest monthly gain ever, to a record in March.
Such trends show why firms like Intuit Inc., the maker of TurboTax, and H&R Block Inc., have spent millions of dollars lobbying Congress to limit efforts to simplify the tax-filing process.
But it gets worse, as Andrew Napolitano writes via The Mises Institute; with a tax code that exceeds 72,000 pages in length and consumes more than six billion person hours per year to determine taxpayers’ taxable income, with an IRS that has become a feared law unto itself, and with a government that continues to extract more wealth from every taxpaying American every year, is it any wonder that April 15th is a day of dread in America?
Social Security taxes and income taxes have dogged us all since their institution during the last century, and few politicians have been willing to address these ploys for what they are: theft.
During the 2012 election, then-Texas Gov. Rick Perry caused a firestorm among big-government types during the Republican presidential primaries last year when he called Social Security a Ponzi scheme. He was right. It’s been a scam from its inception, and it’s still a scam today.
When Social Security was established in 1935, it was intended to provide minimal financial assistance to those too old to work. It was also intended to cause voters to become dependent on Franklin Delano Roosevelt’s Democrats. FDR copied the idea from a system established in Italy by Mussolini. The plan was to have certain workers and their employers make small contributions to a fund that would be held in trust for the workers by the government. At the time, the average life expectancy of Americans was 61 years of age, but Social Security didn’t kick in until age 65. Thus, the system was geared to take money from the average American worker that he would never see returned.
Over time, life expectancy grew and surpassed 65, the so-called trust fund was raided and spent, and the system was paying out more money than it was taking in – just like a Ponzi scheme. FDR called Social Security an insurance policy. In reality, it has become forced savings. However, the custodian of the funds – Congress – has stolen the savings and spent it. And the value of the savings has been diminished by inflation.
Today, the best one can hope to receive from Social Security is dollars with the buying power of 75 cents for every dollar contributed. That makes Social Security worse than a Ponzi scheme. You can get out of a Ponzi investment. You can’t get out of Social Security. Who would stay with a bank that returned only 75 percent of one’s savings?
The Constitution doesn’t permit the feds to steal your money. But steal, the feds do.
Also in 2012, during a Republican presidential debate, a young man asked the moderator to pose the following question to the candidates: “If I earn a dollar, how much of it am I entitled to keep?” The question was passed to one of the candidates, who punted, and then the moderator changed the topic. Only Congressman Ron Paul gave a serious post-debate answer to the young man’s question: “All of it.”
Every official foundational government document – from the Declaration of Independence to the U.S. Constitution to the oaths that everyone who works for the government takes – indicates that the government exists to work for us. The Declaration even proclaims that the government receives all of its powers from the consent of the governed. If you believe all this, as I do, then just as we don’t have the power to take our neighbor’s property and distribute it against his will, we lack the ability to give that power to the government. Stated differently, just as you lack the moral and legal ability to take my property, you cannot authorize the government to do so.
Here’s an example you’ve heard before. You’re sitting at home at night, and there’s a knock at the door. You open the door, and a guy with a gun pointed at you says: “Give me your money. I want to give it away to the less fortunate.” You think he’s dangerous and crazy, so you call the police. Then you find out he is the police, there to collect your taxes.
The framers of the Constitution understood this. For 150 years, the federal government was run by user fees and sales of government land and assessments to the states for services rendered. It rejected the Hamiltonian view that the feds could take whatever they wanted, and it followed the Jeffersonian first principle that the only moral commercial exchanges are those that are fully voluntary.
This worked well until the progressives took over the government in the first decade of the 20th century. They persuaded enough Americans to cause their state legislatures to ratify the Sixteenth Amendment, which was designed to tax the rich and redistribute wealth. They promised the American public that the income tax would never exceed 3 percent of income and would only apply to the top 3 percent of earners. How wrong – or deceptive – they were.
Yet, the imposition of a federal income tax is more than just taking from those who work and earn and giving to those who don’t. And it is more than just a spigot to fill the federal trough. At its base, it is a terrifying presumption. It presumes that we don’t really own our property. It accepts the Marxist notion that the state owns all the property and the state permits us to keep and use whatever it needs us to have so we won’t riot in the streets. And then it steals and uses whatever it can politically get away with. Do you believe this?
There are only three ways to acquire wealth in a free society. The inheritance model occurs when someone gives you wealth. The economic model occurs when you trade a skill, a talent, an asset, knowledge, sweat, energy or creativity to a willing buyer. And the mafia model occurs when a guy with a gun says: “Give me your money or else.”
Which model does the government use? Why do we put up with this?
The British Chambers of Commerce urges British firms to do more to protect themselves.
In response to the US vice president, Russia’s foreign minister Sergey Lavrov said that Mike Pence’s statement on the US running out of “strategic patience”
towards Pyongyang does not contribute to resolving the crisis. The top Russian diplomat also voiced hope there will be no repeat of the US strike on Syria in North Korea.
On Monday, speaking from the DMZ, Mike Pence said the world has witnessed the “strength and resolve of Trump in actions taken in Syria and Afghanistan,” and threatened North Korea “not to test” this resolve or “or the strength of the armed forces of the United States.”
Lavrov responded by saying “I hope that there won’t be any unilateral actions like we recently saw in Syria and that the US will follow the policies Trump repeatedly declared during his election campaign.” He also warned the US not to take any military actions, stressing that the “risky nuclear and missile endeavors of Pyongyang” violating UNSC resolutions could not be used as an excuse for violating international law and the UN Charter “in the same fashion” as in Syria.
The period of US policy before the current escalation could be hardly described as an “era of strategic patience,” Lavrov added.
“I cannot call the Obama administration’s period an ‘era of strategic patience,’ as the US has been quite harshly limiting North Korea’s capabilities to develop economy sectors related to nuclear or energy areas,” Lavrov said, referring to past US initiatives, many of them backed by the UN Security Council.
Also addressing the matter, Kremlin spokesman Dmitry Peskov said that harsh statements do not contribute to peace and stability in the region, while commenting on South Korean President Hwang Kyo-ahn’s promise to “implement intensive punitive measures” on Pyongyang in case of any “provocations.”
“Our position is well known and consistent. We call on all sides to avoid any actions which might be perceived as a provocation. And we stand for the continuation of coordinated international efforts in existing formats to resolve the North Korean problem,” Peskov said.
Meanwhile tensions on the Korean Peninsula remain high: after Pyongyang conducted a missile test amid joint US-South Korea drills in March, and with at least one and as many as 3 US aircraft carrier groups headed toward the Peninsula, today North Korea’s UN ambassador said the US has “created a dangerous situation in which the thermonuclear war may break out at any moment on the peninsula and pose a serious threat to the world’s peace and security, to say nothing of those of northeast Asia.” Separately, North Korea told the BBC that the country would be “conducting more missile tests on a weekly, monthly and yearly basis,” in effect assuring a provocation.
Judging by the market’s response on Monday, a global thermonuclear war would be just the catalyst to pust the S&P back over its all time high of 2,400.