Blogs y opiniones de economia en ingles

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The Day That Richard Nixon Changed U.S. Economic Policy Forever
Fifty years ago, in response to rising inflation, he rejected several long-standing practices. His Keynesian turn holds lessons for today’s economy.
Bruce Bartlett, July 9, 2021

 

 

August 15, 1971, was a fateful day in the history of American economic policy: President Richard Nixon imposed far-ranging wage and price controls on the U.S. economy, abolished the fixed exchange rate system that had been in place since 1945, and took other significant actions to deal with inflation, which had become the economy’s overarching problem. In many ways, we are still dealing with the consequences of those actions.

From 1945 until 1971, the economy of the Western world was governed by a system established at a conference in Bretton Woods, New Hampshire, where the victorious powers from World War II (minus the Soviet Union) created rules and institutions designed, above all, to prevent a repeat of the Great Depression. Two principles in particular governed the system. First, there would be widespread free trade (further ensured by the Marshall Plan and the Organization for European Economic Cooperation, now known as the Organization for Economic Cooperation and Development). That is because the Smoot-Hawley Tariff and subsequent beggar-thy-neighbor policies were viewed as a root cause of the depression.

Second, the world monetary system was based on fixed exchange rates to prevent devaluations from being a substitute for protectionist trade policies. (When a currency falls in value, imports become more expensive and exports become cheaper in terms of other currencies.) Major nations fixed their currencies to the dollar, and the dollar was fixed to gold at $35 per ounce to provide an anchor for the system. The International Monetary Fund was established to manage this system and deal with fluctuations in currency values resulting from the balance of payments problems.

One of the keys to maintaining this system was capital controls. Major nations did not permit the free flow of capital internationally because it could easily destabilize exchange rates. Businesses and individuals had to get permission to import or export capital, and access to foreign exchange by domestic investors or domestic currency by foreign investors was controlled by the central bank. As a consequence, investors were denied the opportunity to seek higher returns in other countries and were forced to invest domestically.

Free-market economists such as Milton Friedman decried the Bretton Woods system because capital controls conferred enormous power on national governments and imposed great inefficiencies on businesses, forcing them to engage in uneconomic transactions to evade the controls. For example, a domestic business could sell goods to a foreign subsidiary at a loss, recouping its losses when those goods were resold in the foreign market, thus obtaining foreign exchange. (This is known as under-invoicing; the same techniques continue to be used by corporations to evade taxes.)

As early as 1953, Friedman advocated floating, whereby market forces would set exchange rates. However, it was feared that this would lead to economic instability that would ultimately reduce international trade and economic growth, and that fixed exchange rates were a brake on the ability of governments to run trade, current account, and budget deficits, as well as central banks’ ability to finance them with money creation. Elimination of these constraints would be inflationary, it was believed.

The emergence of persistent inflation in the 1960s put enormous pressure on the Bretton Woods system as exchange rates diverged from fundamental values. Efforts by Federal Reserve Board Chairman William McChesney Martin to dampen inflation and strengthen the dollar by raising short-term interest rates were strenuously resisted by President Lyndon Johnson. The Great Society and the Vietnam War—dubbed guns and butter—were greatly increasing federal spending and borrowing, and he feared that unless the Fed accommodated this it would result in a recession. Conventional economic theory recommended a tax increase to dampen consumer demand to reduce inflationary pressure, but Johnson resisted this idea.

Finally, in 1968, Johnson supported a one-year surtax of 10 percent on all income tax payments. (You multiplied your regular tax liability by 10 percent to calculate your additional tax payment.) The Revenue and Expenditure Control Act of 1968 took effect from April 1, 1968, through July 1, 1969.

Friedman, an adviser to Republican presidential nominee Richard Nixon, and other so-called monetarists argued that the tax surcharge would fail to curb inflation because the root problem was excessive growth of the money supply. On September 27, 1968, The Wall Street Journal reported that the surcharge “shows many signs of being a flop.” Inflation for the year came in at 4.7 percent versus 3 percent in 1967—an increase of more than 50 percent in the inflation rate.

Despite having promised during the campaign to end the surtax, Nixon was persuaded by his economic advisers to support an extension of it. This was coordinated with Johnson and announced in his last State of the Union Address. In the Tax Reform Act of 1969, the 10 percent rate was extended through the end of the year and at a 5 percent rate through July 1, 1970.

Nixon’s unwillingness to follow a strict Friedmanite/monetarist policy on inflation and to support a tax increase was the first sign that he was moving toward a Keynesian view of the economy. The economist John Maynard Keynes, who died in 1946, was the bête noire of all conservative economists because he believed that an active government fiscal policy (taxing and spending) was the most powerful tool government had to steer the economy. Conservatives universally believed that this led government to become ever larger and was, in any event, ineffective at either stimulating growth or taming inflation.

In early 1971, Nixon admitted publicly that he was indeed a Keynesian.

In early 1971, Nixon admitted publicly that he was indeed a Keynesian: On January 4, he told ABC commentator Howard K. Smith, off camera, that he was “now a Keynesian in economics.” According to The New York Times, Smith was astonished by Nixon’s admission, likening it to a Christian saying, “All things considered, I think Mohammad [the founder of Islam] was right.”

The Times’ principal economic analyst, Leonard Silk (a Ph.D. economist), said that anyone paying close attention to Nixon’s economic policies could have seen that he had been moving in a Keynesian direction for some time. Silk attributed this primarily to Nixon’s intense desire to stimulate the economy through the 1972 election. In his book, Six Crises, Nixon lamented that an ill-timed recession in 1960 torpedoed his presidential race against John F. Kennedy. (Another recession began in December 1969 and ran through November 1970, which gave Nixon an uncomfortable feeling of déjà vu.)

One problem with free-market policy is that it has nothing to offer when there is an economic downturn or any means to stimulate economic growth except do-nothing—the free market always delivers the best growth that is possible, its advocates continually say. Whatever the economic virtues of this philosophy, it is politically untenable; politicians must be able to do something in an economic downturn.

On October 17, 1970, Nixon announced his intention to nominate the prominent economist Arthur F. Burns, who had been serving him on the White House staff, as chairman of the Federal Reserve Board when Martin’s term expired in January. Nixon was very familiar with Burns’s thinking from the Eisenhower administration, in which Burns served as chairman of the Council of Economic Advisers and Nixon was vice president. Therefore, Nixon knew that Burns did not see inflation as primarily a monetary phenomenon.

Just days before the events of August 15, Burns testified before the Joint Economic Committee that he had grown pessimistic that inflation could be contained using traditional monetary and fiscal tools. “Additional governmental actions involving wages and prices” were needed, he said. While decrying price controls as “drastic,” Burns said he would support a Wage and Price Review Board or Anti-Inflation Board to bring pressure on wage and price increases viewed as excessive and inflationary. (This was often called “jawboning.”)

At the ceremony swearing Burns in as Fed chairman, Nixon made it clear that he was being sent there to implement policies that would benefit him. “I have some very strong views on some of these economic matters and I can assure you that I will convey them privately and strongly to Dr. Burns,” Nixon said. “I respect his independence. However, I hope that independently he will conclude that my views are the ones that should be followed.” (Burns’s diary reveals that Nixon called him frequently to offer advice.)

Inflation continued to be a problem in 1971, with forecasts showing an acceleration into 1972, which presented a growing political problem for Nixon.

Inflation continued to be a problem in 1971, with forecasts showing an acceleration into 1972, which presented a growing political problem for Nixon. Although inflation was unpopular, so were actions such as higher interest rates to moderate it. Those on the left had a simple answer: wage and price controls. On July 20, 1971, Harvard economist John Kenneth Galbraith, who had helped administer wage and price controls during World War II, testified before the Joint Economic Committee that there was really no choice in the matter because there was no combination of monetary or fiscal policies that could curb inflation without sharply raising the unemployment rate. Continuing, Galbraith said:

There is only one way to have an effective economic policy. That is to leave the monetarists and fiscalists to continue their academic quarrel and recognize that adequate employment and reasonably stable prices can only be reconciled by coming to grips with the wage-price spiral. That requires controls.… The first step in getting an effective economic policy must be a general freeze.

Ironically, Galbraith, who was widely known for being a supporter of Keynesian economics, added that “Mr. Nixon has proclaimed himself a Keynesian at the moment in history when Keynes has become obsolete.” Galbraith thought that big corporations could now charge monopoly prices, which negated Keynesian policies.

Nixon’s CEA chairman Paul W. McCracken was alarmed by Galbraith’s testimony and penned an attack on it in a Washington Post op-ed article on July 28. Wage and price controls would seriously erode personal freedom, McCracken said, and quickly collapse unless the underlying monetary and fiscal sources of inflation were restricted. He was also dubious about the government’s ability to administer an all-encompassing set of wage and price controls.

What really set in motion the actions of August 15 was a demand by Britain to exchange $3 billion of U.S. dollars it held from running a trade surplus for gold. Although American citizens were prohibited from owning gold, the Bretton Woods system permitted governments to do exactly what Britain wanted to do. The problem was that the U.S. had only about $10 billion of gold at that time and had no intention of giving such a large chunk of it to the British. Every other country holding dollars would have instantly demanded gold as well and there wasn’t enough to go around—a classic run on the bank.

Another impetus for action on the dollar was pressure from Congress for devaluation. A report from the Joint Economic Committee advocating it had been leaked to the New York Times on August 8 and gotten a great deal of attention at the Treasury Department.

The Treasury Department had primary responsibility for international monetary policy, and Treasury Secretary John Connally, who had no training in economics and had recently been governor of Texas as a Democrat, took the lead in setting up a meeting at Camp David to deal with the gold crisis. According to recently published research by economists James L. Butkiewicz and Scott Ohlmacher, Connally’s plan had been drawn up by Paul Volcker and proposed that the dollar be allowed to float temporarily until exchange rates stabilized. Since this would constitute a de facto devaluation of the dollar, which was widely viewed as overvalued, it would quickly raise prices of imports and inflation throughout the economy. Thus Volcker advocated a three-month wage-price freeze until a new international monetary regime could be reestablished. Additionally, Connally advocated a 10 percent surcharge on foreign imports to improve the balance of trade.

Secrecy regarding the Camp David meeting was very high. Even the slightest hint of an impending revaluation of the dollar would have sent financial markets into a tailspin. Indeed, the dollar was already under speculative attack just as the meeting began on August 13, intensifying the crisis atmosphere.

McCracken’s top assistant at that time was an economist named Sid Jones. I worked for Jones at the Treasury Department during the George H. W. Bush administration. He told me that he had no inkling of what was happening until McCracken came to him just before leaving for Camp David with a document appointing Jones as acting chairman of the CEA until Monday. Not only had McCracken never done such a thing before; it was highly suspect since Jones wasn’t even a member of the CEA, but only a staffer. Jones speculated that McCracken wanted to be able to say he technically wasn’t chairman of the CEA when the new economic policy was announced.

I am also reminded that I met John Connally in 1980, when he was running for president as a Republican. He gave a speech largely devoted to attacking wage and price controls. I said his points were well taken, so why did he advocate controls in 1971? Oddly flustered by my question, he said there was one unique moment in all of human history when they might have worked and that was in 1971. Connally may not have known anything about economics, but he sure knew the political virtues of appearing bold during a crisis.

At 9 p.m. on August 15, Nixon addressed the nation from the Oval Office, announcing the program of wage and price controls, closing the gold window, and new tariffs on imports. Simultaneously, he issued Executive Order 11615 implementing these policies immediately. Congressional reaction was mixed, but the stock market soared, rising almost 4 percent on August 16. (Businesses thought that the controls on wages would be beneficial, while the constraints on prices were easily evaded; for example through rebates on automobile purchases, which originated during this time and continue today.)

With the inflation problem temporarily under control, Nixon felt free to push Burns to keep interest rates low and continue to provide monetary stimulus, so that the economy would be strong through the 1972 election. Tapes Nixon made of his Oval Office conversations document this pressure.

As everyone involved knew, the controls couldn’t be maintained for long. For one thing, prices on imports and farm commodities couldn’t be controlled. This was especially important regarding the price of oil. Although it was denominated in dollars, the prices of everything the oil producers bought in other currencies rose sharply after the dollar fell. Thus the devaluation led directly to the spike in oil prices by the Organization of Petroleum Exporting Countries in October 1973.

Globalization destroyed the private sector labor unions and allowed businesses to exploit workers throughout the world, creating a race to the bottom in terms of wages.

Space prevents a fuller discussion of the consequences of the actions of August 15, 1971. However, I do not think it is a coincidence that the long-term divergence between economic output and worker compensation began almost exactly on that date. Once businesses were free to invest abroad by the abolition of capital controls, which followed from the elimination of fixed exchange rates, workers lost enormous leverage. Globalization destroyed the private sector labor unions and allowed businesses to exploit workers throughout the world, creating a race to the bottom in terms of wages.

Contrary to popular belief on the left, Ronald Reagan’s policies had almost nothing to do with it, and the trend continued through Bill Clinton’s and Barack Obama’s administrations. (Of course, both supported the “neoliberal” consensus that globalization is largely beneficial to the U.S., as does Joe Biden.)

Unfortunately, the option of continuing the Bretton Woods system was not an option, although perhaps it could have been replaced by something better than what we got. The toothpaste cannot now be put back in the tube, and those who say we should return to fixed rates or a gold standard are simply cranks. (Milton Friedman was among those who thought so.) The important thing to remember is that the long stagnation of wages was set in motion by deep international macroeconomic forces that are tied to foreign trade and exchange rates. Those forces changed fundamentally on August 15, 1971, and we are still living with the consequences, which were never envisioned by those who met at Camp David 50 years ago. They believed in their hearts that they were just tinkering, but in fact, were opening Pandora’s Box.

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Bruce Bartlett @BruceBartlett

Bruce Bartlett is a longtime observer and commenter on economic and political affairs in Washington, D.C., who has written for The New York Times, The Washington Post, The Wall Street Journal, USA Today, Politico, and many others. A bestselling author, his latest book is The Truth Matters: A Citizen’s Guide to Separating Facts From Lies and Stopping Fake News in Its Tracks.

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Published on August 15th, 2021 This article is a guest contribution by David Morris.  David Morris is a self-taught investor and a member of the Sure Dividend community. He aspires to developing expertise as a freelance equity analyst on an amateur and part-time basis, primarily for purposes of personal growth and self-fulfillment. Hedge funds and […]

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I chalk up the explosion in quits (2.7%, now at a 20 year high) and new business formation to three main causes: Stimulus cash padding people’s bank accounts, the combination of cloud computing plus iPhones allowing anyone to start a business, the fintech revolution enabling payments for everyone.  And that’s only part of what we get into this week. Thanks to Allison and Sam for bringing so much information ...

The post 10 Million Job Openings and a Record High Quit Rate appeared first on The Reformed Broker.

Avert your eyes! My Sunday morning look at incompetency, corruption and policy failures:

• The Lucrative Business of Stoking Vaccine Skepticism How misinformation peddlers are using crowdfunding sites to bankroll their work. (Slate)

• Acres of Money Laundering: Why U.S. Real Estate is a Kleptocrat’s Dream What do the Iranian government, a fugitive international jeweler, and a disgraced Harvard University fencing coach have in common? Kleptocrats, criminals, sanctions evaders, and corrupt government officials choose the U.S. real estate market as their preferred destination to hide and launder proceeds from illicit activities. They have all used U.S. real estate to launder their ill-gotten gains. (Global Financial Integrity) see also Notes on NFTs, the high-art trade, and money laundering NFTs create new opportunities for bad guys to move money without attribution. (Amy Castor)

• Weak Oversight Plagues Audits of Billions in Private Assets Self-regulatory audit system fails to safeguard charities, pension funds and private companies, a WSJ analysis finds (Wall Street Journal)

• Deceptions and lies: What really happened in Afghanistan. U.S. hid the truth about an attack targeting Cheney, amid fears of losing war By lying about how close the insurgents had come to harming Cheney, the U.S. military sank deeper into a pattern of deceiving the public about many facets of the war, from discrete events to the big picture. What began as selective, self-serving disclosures after the 2001 invasion gradually hardened into willful distortions and, eventually, flat-out fabrications. (Washington Post)

• An inconvenient truth (about weed) Federal laws bar cannabis from crossing state lines, driving up the cost — and the emissions — of an industry using indoor grow operations. (Politico)

• ‘Warrior mindset’ police training proliferated. Then, high-profile deaths put it under scrutiny. “What is the highest priority in policing?” said Stoughton. “One of the things that bothers me is the way that the policing industry has evolved to treat courage under combat conditions as the highest form of police professionalism.” (Washington Post)

• Secret IRS Files Reveal How Much the Ultrawealthy Gained by Shaping Trump’s “Big, Beautiful Tax Cut” Billionaire business owners deployed lobbyists to make sure Trump’s 2017 tax bill was tailored to their benefit. Confidential IRS records show the windfall that followed. (ProPublica)

• Judge asks why Capitol rioters are paying just $1.5 million for attack, while U.S. taxpayers will pay more than $500 million Chief U.S. District Judge Beryl A. Howell of Washington challenged the toughness of the Justice Department’s stance in a plea hearing for a Colorado Springs man who admitted to one of four nonviolent misdemeanor counts of picketing in the U.S. Capitol. (Washington Post)

• “All Roads Lead to Mar-a-Lago”: Inside the Fury and Fantasy of Donald Trump’s Florida Roger Stone, Tucker Carlson, Sean Hannity, Ben Shapiro—they’ve all made their way to the Sunshine State, fueling and profiting from a tabloid culture that turns politics into spectacle, arguably Florida’s greatest export. (Vanity Fair) see also Donald’s Plot Against America: Now, he and his GOP enablers are peddling the Second Big Lie: that January 6 was just legitimate protest. It’s the crucial ingredient in convincing America to return them—and him—to power. (New Republic)

• Farm Supply Stores Are Running Short on a Horse Dewormer/Pseudoscience COVID Cure “The hardship comes when you run to your farm supply store and they don’t have [ivermectin] on the shelves anymore because of all of this.” (Slate)

Be sure to check out our Masters in Business interview this weekend with Greg Becker, CEO of Silicon Valley Bank. The bank has helped fund more than 30,000 start-ups, 50% of venture-backed tech and life science companies in the US, and 69% of U.S. VC-backed tech + life science companies with an IPO banked with SVB.

 

Confidence in Big Business, Big Tech Wanes Among Republicans

Source: Gallup

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I recently had the pleasure of chatting to Sean Murray from ‘The Good Life.’ We talked about all things investing including quality companies, powerful business models, developing a multi-disciplinary mindset and the common threads evident amongst the very best investors, CEOs and businesses.

I’m a big fan of Sean’s work, be sure to check out his other interviews with the likes of Robert Cialdini, Annie Duke, Michael Abrashoff, Morgan Housel and William Green.

I hope you enjoy the episode…

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Articles The range of uncertainty in our analysis is vast. (By Dave Nadig) When everything is digital, proving that you own something and being able to bring it with you across the internet will be key (By Packy McCormick) Three times history hung by a thread (By Morgan Housel) Offering futures for altcoins within the first few months of operating is not the kind of move a more cautious exchange like Coinbase would make (...

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Deja vu of 2011 the GOP are playing brinkmanship with the Federal debt limit. Once again, the suckers at the table are bluffing with a pair of fours...





Republicans are REALLY pissed off. Partly due to the election fiasco, partly due to the social justice mob rule, but mostly due to self-inflicted problems. I am referring of course to Supply Side trickle down economics which has been the mainstay of Republican policy since Reagan. The theory behind it is that as the rich get richer everyone else gets the bread crumbs falling off the table. Think deck hands on mega yachts and so forth. The "success" of this policy is measured in record wealth which we learned this week is now inversely correlated to consumer confidence. 
It's the inevitable endgame for Voodoo Economics:




For Republicans, consumer confidence is now LOWER than March 2009 when the market had crashed -55%. Which is a harbinger for massive unrest when this collapse takes place.




Needless to say, this collapse in consumer confidence is a disaster in the making given the impending fiscal cliff that will take place after Labor Day which is when Federal unemployment benefits end for 7.5 million people. As we see above, it's all very reminiscent of 2011 when the GOP refused to increase the debt limit for Obama. Consumer confidence collapsed. Republicans say they are refusing to raise the debt ceiling "on principle" however they had no problem raising it for Trump and his massive tax cut for the ultra wealthy. This is rank hypocrisy bluffing with an empty hand, and I predict the cost of it will be measured in trillions of deflated asset wealth.




As a reminder, when this all played out in August 2011, stocks crashed -20% and bonds were bid. The VIX hit 50. Ironically, bond yields collapsed despite the technical default. This time however, the stakes are 10x higher given the amount of leverage that has been added in the meantime. 
In particular, the fragile reflation trade will get monkey hammered and it's already in a precarious position on the verge of third wave down.
This is the WORST time for brinkmanship:




Also getting interesting is the ongoing meltdown in Chinese markets, which has been celebrated as a victory for the U.S. 
This coming week happens to be the same week in August 2015 when the Chinese meltdown spilled over into global markets. 
What could go wrong? 




As far as gold goes, the GOP antics in 2011 killed the gold rally.





On the Tech-heavy Nasdaq, Friday saw the largest number of new lows at an S&P 500 all time high in thirty years:





In summary, I predict that Congress will be moved to raise the debt ceiling and extend unemployment benefits, but the cost of the delay will be far more than they can afford.

 

 

This week, we speak with Greg Becker, who is the chief executive officer of Silicon Valley Bank — the only bank dedicated to the global innovation sector — and CEO of SVB Financial Group. Becker joined SVB in 1993 and has served as CEO since 2011; he previously held various senior positions including co-founder and managing director of SVB Capital, chief banking officer, and president of Silicon Valley Bank.

He explains how SVB brings nearly 10,000 companies in who are just getting started. They tailor their products to them from venture financing, lending, and banking services. Clients of SVB startup-banking make up 50% of venture-backed tech and life science companies in the US; 69% of U.S. VC-backed tech + life science companies with an IPO banked with SVB in 2019.

The firm has been active in the FinTech area, with both clients and deploying tech on their platform. It helps them as an institution to press ahead and be bold. SDVB is now global, operating in Asia, the UK, and Europe, China, and elsewhere around the world.

A list of his favorite books is here; A transcript of our conversation is available here Monday.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Fran Kinniry, who is a principal in the Vanguard Investment Strategy Group, and became Global Head of Private Investments at investing giant Vanguard Group in 2019.

 

 

Greg Becker’s Favorite Books

The Boys in the Boat: Nine Americans and Their Epic Quest for Gold at the 1936 Berlin Olympics by Daniel James Brown

The Pacific War: 1941-1945 by John Costello

2034: A Novel of the Next World War by Elliot Ackerman and Admiral James Stavridis

 

 

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We’ve been a predominantly remote employee firm for years now – starting way back before it was cool. And over the years we’ve learned a lot about the power of getting people together in person to work and play. This past week employees based in Nassau and Suffolk Counties (LI), Staten Island, Manhattan, Orange County (Upstate NY), Hilton Head SC and Chicago IL came together for a few days of training, ...

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The weekend is here! Pour yourself a mug of Mocha Java coffee, grab a seat by the pool, and get ready for our longer-form weekend reads:

• Dear Earthlings: Please stop obsessing about UFOs My strong suspicion is that the number of UFO sightings that involve actual alien beings, from deep space, with the tentacles and the antennae and so on, is zero. I would put the likelihood at 0.0000 and then add some more zeros, before eventually, begrudgingly — because I’m so intellectually flexible — putting in a little 1 out there somewhere to the right, a lonely sentinel, because who knows? (Yes, I’m saying there’s a chance.) Sorry to disappoint you, this science writer says, but there’s zero evidence of aliens. (Washington Post)

• How the explosive growth in satellites could impact life on Earth Satellites are set to grow by 1,000%+ in the next decade. They might help us predict pandemics and save the planet.  (The Hustle)

• Why A Secretive Chinese Billionaire Bought 140,000 Acres Of Land In Texas Sun’s decision to invest in Texas also highlights the difficult situation facing China’s moguls. Over the past few years, the Chinese Communist Party appears to have grown more antagonistic toward private enterprise and wealthy business people. In recent months Chinese authorities reined in globetrotting billionaire Jack Ma, moved to restrict overseas listings and ordered educational companies to become non-profits. Tycoons like Sun, who thrived under Chinese state-backed capitalism, may be feeling pressure to move capital abroad as they grapple with the shift in political winds. (Forbes)

• Status Monkeys Analyzing NFTs as Social Networks Before the full Metaverse arrives, there’s already something happening that’s bigger than jpegs. NFTs are starting to feel a lot like a new kind of social network that sits above other social networks and communities — something of a Superverse — and there’s no better framework to evaluate a social network than the one Wei put forth in Status-as-a-Service (StaaS). (Not Boring)

• The Way the Senate Melted Down Over Crypto Is Very Revealing I want to explain why crypto matters, even if you think Bitcoin is just goldbuggery for nerds. The technology is evolving to be much more than a digital currency, and Silicon Valley sees it as the digital infrastructure atop which the next internet will be built. Then I want to trace the fight that consumed the final days of the bill, because this was just an early skirmish in what will be a much longer campaign. (New York Times) but see also Beyond the Bitcoin Bubble Yes, it’s driven by greed — but the mania for cryptocurrency could wind up building something much more important than wealth. (New York Times)

• Animals Can Count and Use Zero. How Far Does Their Number Sense Go? Crows recently demonstrated an understanding of the concept of zero. It’s only the latest evidence of animals’ talents for numerical abstraction — which may still differ from our own grasp of numbers. (Quanta Magazine)

• If Einstein Had The Internet: An Interview With Balaji Srinivasan Technology as determinant of historical cycles in market and government influence, why culture has stagnated despite advances in the tools that make it, how wokism will lose, and more! (Time Well Spent)

• It’s hard to be a moral person. Technology is making it harder. Digital distractions such as social media and smartphones wreak havoc on our attention spans. Could they also be making us less ethical? (Vox)

• “The Segway Is Going to Change the World” As the new millennium dawned, a mysterious invention from a charismatic millionaire became a viral sensation—then went down in flames. Ever since, I’ve wondered: Was it all my fault? (Slate)

• Still Unsure About Getting The COVID-19 Vaccine? Start Here. We’ve collected some of the most common concerns with vaccination mentioned by people who are vaccine hesitant, and we’ve provided evidence-based responses to each one. If you or someone you know share any of these concerns, click through to see what information is out there to help you make this important decision. (FiveThirtyEight)

Be sure to check out our Masters in Business interview this weekend with Greg Becker, CEO of Silicon Valley Bank. The bank has helped fund more than 30,000 start-ups, 50% of venture-backed tech and life science companies in the US, and 69% of U.S. VC-backed tech + life science companies with an IPO banked with SVB.

 

Since the Gold Standard ended 50 Years ago, the S&P 500’s total return = 20,000% this week, while gold returned = 4,200%

Source: Dave Wilson’s Chart of the Day

 

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This Week in Women LIVE is Back! My guest on Monday will be Joelle Boneparth, an assistant general counsel for a Fortune 100 company, an author, and a mother of two little girls. I’ve been hooked on Joelle’s weekly newsletter, Our Tiny Rebellions, since she started it earlier this year, and I can’t wait to ask her about it. Tune in LIVE on Instagram. Monday, August 16th at 4 pm ET / 1 pm PT.  I’ve...

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Bought: WFC RNR OGN BKR
Added to: NXPI FLEX PRGO PFE XRAY VST FISV CAG

A selection of correspondence

Added to: JHG CMCSA GE IVZ

Added to: IEP XRX

A third of young adults in NJ have ‘boomeranged’ back to their parent’s homes over the past year, poll finds.

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Q2 2021 hedge fund letters, conferences and more

The Boomerang Generation

‘Boomerangers’... ‘Going Nowhere Generation’... ‘Growing Ups’... ‘Failed Fledglings’... Whichever term you choose to associate with the rise in adult kids moving back in with their parents, it has led to significant changes in living arrangements for everyone involved. Whether it’s a result of the red hot real estate market, the pandemic-hit economy, or simply a desire to save money by moving back home, many parents whose kids have boomeranged have had to alter their retirement plans and finances in line with having a full nest again.

A survey of 3,500 by ISoldMyHouse.com has revealed that over 1 in 3 young adults (35%; 18-35) in NJ have moved back in with their parents over the past year - compared to a national average of 36%. And aside from free housing, the research found that 16% have received financial support from their parents.

Some parents may hope that this current boomerang generation represents a temporary pandemic-bolstered blip, likely to resolve itself as restrictions are eased and the economy expands. However, the reality is that the pandemic amplified a trend that has been on the rise over the last few decades. Indeed, sustainable economic independence has been steadily receding and fewer young adults are getting married.

The average rent for homes increased 7.9% over the past year. In some urban areas, the surge has climbed as high as 12%. This is a result of urban renters in pursuit of more living space (possibly brought on by spending months on end in their homes during lockdown), a well as ongoing pressure from ageing millennials. In fact this represents the largest spike in rent for single-family homes in nearly 15 years. Moreover, house prices have increased 26% over the past year, diminishing any hopes of getting onto the property ladder.

Is This Trend Good Or Bad?

Whether this growing boomerang trend is a good or a bad thing depends to a certain degree on who you are asking. Is moving back in with parents a sign of failure, or a shrewd financial move designed to put young adults in a better position when they finally fly the coop? According to the survey, moving back in with parents is a prudent move – a whopping 2 in 3 (72%) ‘boomerangers’ feel this is the case!

However, on the other side of the coin, the point of view is more opaque… The survey revealed that many parents are not overly enthusiastic about the situation – 27% of parents in the Garden State say they feel burdened by having to house their non-rent paying tenants. This is perhaps unsurprising – 15% say they have had to delay retirement plans in order to support their adult children. Moreover, 1 in 3 parents who had previous intentions to downsize the family home, are now unable to do so. In fact, over 1 in 5 (22%) say they are considering upscaling in order to accommodate them.

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“Although moving back in with parents can be seen as a step backwards,” says Kris Lippi of ISoldMyHouse.com, “looking at it from a sociological point of view, what has happened is entirely predictable - this generation of young adults have been priced out of the real estate market in a way that their parents never were, and many have lost their jobs due to the pandemic. If moving back in with parents helps young people’s mental and financial health, then it has to be a positive thing to do."

Updated on Aug 13, 2021, 4:46 pm

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Bought: SJR IS RTPY GTX SKINW NE RTPYW
Added to: MU FB QRVO TBPH

In his Weekend Reading Notes to investors, while commenting on the 10-year Treasury yields, Louis Navellier wrote:

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Q2 2021 hedge fund letters, conferences and more

The drama last week was not so much in the stock market as in the 10-year Treasury yields, when they dropped like a rock to 1.12%, then rose sharply on better-than-expected economic data to touch 1.30%.

Will 10-Year Treasury Yields Continue To Rise?

The question now is: Will they continue to rise, or head back towards 1%?

The way the stock market has been trading in 2021, we’ve seen the so-called reflation trade, dubbed more crudely as “value” – the financials, energy, and industrials – liking the higher Treasury yields, while the technology trade tends to outperform when Treasury yields are subdued or at least not rising quickly.

If the Delta Covid variant turns out to be a problem – and so far, the issues are big only in states with low vaccination rates – then 10-year Treasury yields will likely fall again. Then we have the Lambda variant, and we will likely see other mutations that we have not even discovered (or named) yet.

If people are vaccinated and the virus burns itself out, it will stop mutating; but most of the world is far behind the United States and other developed countries, so my guess is that Covid is far from burning itself out. That means there are likely more twists and turns coming in the coronavirus drama.

The most bullish thing for the stock market that the bond market can do is for the 10-year rate to stay above 1.3% (roughly the vicinity of its 200-day moving average). The most bearish thing for the stock market that the bond market can do is for 10-year Treasury yields to fall straight back down and take out the low of 1.12%. That would mean that the pandemic is not under control (globally) and economic problems from it will continue to plague the stock market.

This week’s trading will give us a lot of clues as to what the bond market is about to do. For Treasury yields to head straight back down to 1% or below would mean that we have an economic problem.

Bitcoin is Also at Major Resistance Levels

The impressive 50% or so rebound since breaking $30,000 conclusively puts bitcoin right under its 200-day moving average, where most of the trading has occurred since mid-May. That level is also near the neckline of a major head-and-shoulders top that broke in May, putting it at a major resistance area.

When it comes to any “support” and “resistance” levels, the key point to note is that they are not precise points, but more like “areas.” The most bearish thing bitcoin can do now is to take out $30,000. I think that’s coming, as regulation against bitcoin and taxation plans in Congress are coming, since Democrats are furious at the inability to collect capital gains taxes on bitcoin transactions. Since they need the money for their spending plans, it’s a safe bet that more regulation and taxation are coming.

Then we have China’s digital yuan push and crackdown against bitcoin, which may very well intensify as the digital yuan is launched. We also had Cathie Wood, Elon Musk, and some other bitcoin aficionados going to a bitcoin conference to express their bitcoin enthusiasm, which caused a violent rally. This, coupled with major exchanges reducing margin loans, caused a rather virulent short squeeze rally.

To me, it looks like a short squeeze rally right into a major resistance area. I think bitcoin will fail here and decline below $30,000.

Updated on Aug 13, 2021, 4:45 pm

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Bought: CRM
Added to: GSHD BAM ADBE

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