- Ishtar-level bad 1980s flashbacks
- Trump/Biden want to screw with Silicon Valley
- In retrospect: Japan’s economic unraveling
- Fed’s diminishing balance sheet
- TSA stockpiled masks (guess what happened next?)
- A reader’s “Fear and Loathing” catharsis… Keep on truckin’… The 5’s new friend… And more!
Your editor is having weird ’80s flashbacks today, starting with this headline from the week gone by…
Leave aside the merits of reopening the schools or not, here’s what’s on our minds.
In 1980, Ronald Reagan won the presidency on a platform that included a pledge to abolish the Department of Education — which came into being that year.
“Welfare and education,” he said, “are two functions that should be primarily carried out at the state and local levels.”
Forty years later, the Department of Education is still with us. And another Republican president, rather than pushing for its abolition, instead wants to use the funds it administers… as leverage to achieve a desired policy outcome on a nationwide basis. So much for local control, huh?
Meanwhile, proposals from both the sitting president and his presumed challenger are also giving us bad ’80s flashbacks.
We’re talking Ishtar bad. (Warren Beatty may never live that one down.) Or Genesis’ self-titled album. (Sorry if we just put “Mama” in your head the rest of the day…)
From The Wall Street Journal a couple weeks ago: “Trump administration officials have talked about inserting the federal government deep into the private sector to stiffen global competition against Chinese telecom giant Huawei Technologies Co.”
Among the ideas being floated are a “government-supported consortium investing directly in Nokia or Ericsson” — the two Scandinavian firms best positioned to compete with Huawei for 5G technology.
Not to be outdone, Joe Biden proposed only yesterday “a $300 billion increase in government spending on research and development of technologies like electric vehicles and 5G cellular networks,” according to The New York Times.
So we have the standard-bearers for both major parties looking to massively intervene in Silicon Valley — the one American industry Washington, D.C., hasn’t managed to destroy yet. Swell.
We’re having bad ’80s flashbacks because it was exactly this sort of intervention that turned Japan into an also-ran among the globe’s major economic players.
Remember the “Japanese miracle” of the ’80s? “Japan Inc.”? Everyone wondered how Japan was eating America’s lunch as an industrial power.
Legions of American executives began studying the work of W. Edwards Deming — who spent decades in Japan researching management techniques like “Kaizen,” or small and steady incremental improvements. That was the good part of Japan’s epic postwar growth.
The bad part was its national industrial policy. American “experts” who should have known better attributed Japan’s success to its emphatically crony-capitalist system. They swooned over MITI — the country’s Ministry of International Trade and Industry, which had its fingers in every aspect of the economy.
Celebrity economist Lester Thurow was typical: “Major investment decisions have become too important to be left to the private market alone.” Article after article in Time and other major publications of the day asked, “Why can’t we do what they do?”
Of course, now we know the rest of the story. It wasn’t worth doing after all.
True, by the end of the ’80s, it seemed as if Japan was poised to take over the world. Japan’s real estate market was valued at four times that of the United States. The Imperial Palace grounds were supposedly more valuable than all the real estate of California or Canada. The Mitsubishi conglomerate bought that most American of icons, Rockefeller Center in New York.
But then it all fell apart. Japan’s Nikkei stock index set a record of 38,916 on Dec. 29, 1989 — a level that’s never been seen since. (Checking our screens right now, it’s 22,291.)
The country’s economy sank into a “lost decade” in the 1990s. Which turned into two more decades of stagnation. Japan was already heading into yet another recession last winter before the pandemic hit.
Years ago, Japan’s central bank blazed trails in money printing that the Federal Reserve is only now catching up with. The idea was to goose the economy back to its 1980s glory days. It’s never worked, but they never stop trying. (What’s the old joke about the definition of insanity?)
And this is the vision both of the major-party presidential candidates have for the decades ahead?
Yeah, it’s not too late to load up on gold.
The stock market action today is a mirror image of yesterday’s — with the Nasdaq struggling and the Dow outperforming.
At last check, the Big Board is up nearly 1% and just 50 points away from 26,000. The Nasdaq, meanwhile, is almost unchanged from yesterday’s record close of 10,553.
Gold has slipped below $1,800 for the moment but is still on track for its best weekly close since 2012. Crude has poked its head above the $40 level again.
“The Federal Reserve is preparing to pull the plug on the markets,” says our resident Fed observer Graham Summers.
As usual, the Fed issued its weekly balance sheet statement yesterday afternoon. After an epic-pandemic round of money printing this spring — which fueled the stock market’s rocket ride in tandem — the total has now been shrinking four weeks in a row…
We noticed last week how the stock market has been moving sideways ever since that balance-sheet peak.
Graham has been noticing too — and digging deeper into the numbers. Some of the reduction he chalks up to “the Fed reducing its currency swaps — giving U.S. dollars to other banks that needed them.” That doesn’t have the effect of draining liquidity from the financial system.
But if the Fed dumps some of its holdings of Treasuries, or mortgage securities, or corporate bonds, or whatever… that’s another story. And that’s exactly what the Fed has done — $66 billion in selling over the last two weeks.
“What,” Graham asks, “do you think will happen to stocks when they wake up to the fact that the Fed isn’t providing weekly liquidity pumps to the tune of $25 billion or more? Hint: It won’t be pretty.”
Of course, that only means the Fed will step back in and blow up the balance sheet some more — to arrest any major stock market sell-off. But that’s not where we are right now…
For the record: 32.9 million Americans collected one or another form of unemployment benefit last week.
“This is 23.77% of the workforce,” tweets Jim Bianco — head of the institutional research firm that bears his name. “But the official unemployment rate (U-3) is 11.10%.
“This does not compute.”
Your government in action: More than 1,000 TSA employees have tested positive for the corona-crud.
“Nearly all of them are security officers who have continued to work screening passengers at airports throughout the pandemic,” says The Washington Post. The TSA’s force of blueshirts totals 50,000 and federal figures indicate 907 have contracted the virus.
Because the media have the attention span of a gnat… it’s up to us to remind you how at the outset of the crisis, the TSA bogarted a stockpile of 1.5 million N95 masks — the good medical-grade stuff — from Customs and Border Protection.
Hardly anyone was going through airports at the time, but the TSA screamed loud enough to their bosses at Homeland Security to get their way.
As noted in our May 7 edition, one TSA attorney objected: “We need to reserve medical masks for health care workers,” said Charles Kielkopf, “not TSA workers who are behind an X-ray machine.”
So two months later, what the hell happened to all those masks?
You’d think we live in a third-world kleptocracy where the media never holds the government accountable. Oh, wait…
To the mailbag: “When you mention government stimulus and people being flush with cash,” a reader writes, “are you referring to the 1,200 bucks everyone got back in April and May?
“That’s hardly considered being flush, unless I’m missing something…
“Most people are struggling, as their livelihoods have either been hampered or destroyed altogether.”
The 5: Well, don’t forget the extra $600 a week in unemployment benefits — for those lucky enough to qualify for benefits. (Those benefits run out in three more weeks, by the way, barring another relief bill in Congress.)
Yes, many people are in a world of hurt. But as we mentioned a month ago, there’s also the strange phenomenon of people with time to spare and money to burn.
And now some reaction to yesterday’s all-mailbag edition of The 5 (if memory serves, the first in this e-letter’s 13-year history)…
“I found your ‘Fear and Loathing’ subject line cathartic since it reminded me of Hunter S. Thompson's book with the same title.
“Thompson's novel that chronicled his drug-crazed misadventures could easily be overlaid with how government at the local, state and federal levels have reacted to COVID-19.
“Thompson and his attorney, Dr. Gonzo, willingly took themselves on a crazy journey whereas we as Americans are being forced into this all-consuming COVID-19 nightmare that feels drug-induced.
“The only conclusion I can draw now is everything ‘the experts’ are recommending is completely wrong and more destructive than the actual virus itself.
“The examples you cited of our fellow Americans just trying to normally conduct their lives and businesses only confirm how really dire our situation is right now.
“The media's contribution to our current state of affairs makes the heavy-handed post 9/11 messaging seem relatively benign by comparison.
“Lastly, I leave you with this thought my mother told me years ago: ‘Your father and I survived the Depression and WWII; sometime it will be your turn.’”
“When I was trucking in the year 2000, President Clinton and his secretary of transportation found a way to force half of all small trucking companies out of business.
“Government’s goal: install DOT officers in every trucking company headquarters. Impossible to do with all the mom and pop companies. So fuel taxes were raised, and truckers were not allowed to pro-rate their prices to cover the costs.
“One of the side effects: I could buy a two-year-old Kenworth W900 for $5,000. No kidding.
“Fast-forward to the Age of COVID. Could it be the IRS wants to put a tax man in every corporate HQ, and to realistically do so we must kill off all small business, and most medium-sized as well? It’s the only thing that makes sense…”
The 5: Interesting. The compliance requirements for the PPP loans are onerous and ever-changing. (Maybe we’ll get into that another day.) The saving grace, at least for now, is that the IRS’ workforce is about 28% smaller than it was a decade ago.
“If I recollect my med school philosophy class correctly (from 60 years ago),” writes our next contributor, “the spirit of Fear and Pandemic in China a reader mentioned was taught to us as the Spirit of the Plague in India.
“I believe the numbers were the same. No matter which country the proverb came from… it applies to all mankind.
“Thanks for your daily enlightenment.”
“I have been a reader for almost a month and very much enjoy the daily reads, and not just for the news you bring, but the truth you bring,” writes our final correspondent.
“Your last sentiment in regard to your readers is very true and has been backed up before and in none other than yesterday’s read.
“It's always encouraging to see other people from around the country truthfully informed about what's really going on (especially from the writers who run the show).
“The main inflection points of our country's current events really have been so politicized that just one’s opinion on the virus itself can say a lot about them…
“Keep up the great work; I look forward to your emails every day. I would also like to applaud you guys for standing up for your own outspoken beliefs.
“It's quietly behind the curtains where true rationality lies.”
The 5: Thank you. As much as we enjoy hearing from our longtimers, we always welcome input from newcomers — good, bad or indifferent. Ultimately, we hope you’ll become a longtimer too!
Try to have a good weekend,
The 5 Min. Forecast