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Creator Of The Bond VIX: It All Comes Crashing Down After 2025

Creator Of The Bond VIX: It All Comes Crashing Down After 2025

Tyler Durden

Wed, 12/02/2020 – 18:26

By Harley Bassman, creator of the MOVE index, aka the "VIX for bonds"

The lack of (CPI) inflation should not distract anyone from..

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Creator Of The Bond VIX: It All Comes Crashing Down After 2025 Tyler Durden Wed, 12/02/2020 - 18:26

By Harley Bassman, creator of the MOVE index, aka the "VIX for bonds"

The lack of (CPI) inflation should not distract anyone from recognizing that our financial economy is presently overwhelmed by too much debt, both public and private; and it is beneath the cloak of systemic risk management that the Federal Reserve (FED) flipped on their printing press to support an alphabet soup of asset purchase programs.

And while I do not begrudge most of the FEDs actions to offer relief from both the Great Financial Crisis (GFC) and the COVID pandemic, what we all must recognize is that the financial remediation of these two crises have pulled forward the day of reckoning for how to fund the promise of Social Security and Medicare for the retiring Baby Boomer demographic.

The political game of “kick the can” for managing the two largest strands of our social safety net has reached an end; about a decade sooner than hoped. We are at a crossroads where one path is well trodden by financial history, and the other newly paved by an economic Pied Piper. But her siren song has been too sweet, and we are turning to the perfidy of Modern Monetary Theory (MMT).

Here we consider the reason and consequence of this dangerous road.

Only Congress can legally “spend” money (Fiscal Policy), and since they would not offer sufficient support in response to the GFC, the FED stepped in with (Monetary Policy) Large Scale Asset Purchases (LSAP), also known as Quantitative Easing (QE), as their most potent tool. These assets landed on the FED’s balance sheet.

While indeed much has changed over the past decade, sometimes to the point where facts do not exist, what has remained constant are the rules for double entry bookkeeping, where every asset must be paired with a liability.

Thus, the assets on the FED’s ledger are paid for by the creation of Money; an incongruity since by law the FED cannot “spend” money.

A Zero Interest Rate Policy (ZIRP) and QE were supposed to be interim measures that would be reversed upon an economic recovery; a progression always followed in the past. However, FED attempts at normalization were thwarted by the 2013 bond “taper tantrum” and the late 2018 equity tizzy.

The FED recognized that there are only two ways out of a debt crisis – either default or inflate with the caveat that inflation is simply a slow-motion default.

Since the market would not allow the FED to reduce its balance sheet via asset sales (or even the slow bleed of letting bonds mature), the alternate solution was to create inflation as a way to reduce the value of debt.

The FEDs dog-eared play book posited that if they increased the supply of Money (M2), and the economy held constant (Quantity), then Prices must rise (inflation) to keep the equation in balance.

GDP = Money * Velocity = Price * Quantity

Such a pity that Velocity collapsed, almost fully offsetting the increase (printing) of Money.

But do not toss out your economic textbooks just yet, as the seeming lack of inflation from the FEDs money-printing is a David Copperfield style illusion.

While CPI inflation barely registers a pulse, asset inflation is rampant. The Case-Shiller Index of residential housing is up 63% from its December 2011 low, and is 23% above its previous peak in June 2006. Gold kissed 2000 in August, an alltime high. And, of course, the S&P 500 is a five-bagger from early 2009.

Notice how much of our national wealth is held by the Top 1%. While a 3%-point increase over the previous peaks may seem small, let me assure you that 3% of a huge number is an extremely large number. Strangely, income distribution held steady. If FED  policies favored the wealthy, and their share of wealth increased, why did their share of income not rise in a similar fashion ?

Wealth concentration increased despite a static distribution of income because the affluent do not spend additional income. The Velocity of money declined because the dollars the FED created went into asset purchases instead of hourly wages where those funds would be recycled back into the economy.

A recent FED study reported that nearly 40% of US households do not have cash on hand to cover a $400 emergency expense (car repair or broken appliance). Surely funds directed to these households would soon be spent (recycled). Velocity is a measure of recycled spending; financial asset purchases are static.

I am loath to offer the topic of politics on these pages, if only because half my readers would soon use a hardcopy version for lining their bird cage.

But as a public policy comment, middle-class citizens should be mad as hell that Government resources were directed at policies that widened the wealth gap. I will stipulate this was NOT the intention of the FED; and that Fiscal policies by both parties have been grossly insufficient.

Thus, the trumpets have blared for the salve of Modern Monetary Theory.

As a reminder, Modern Monetary Theory (MMT) advocates suggest that Governments that create their own fiat currency can borrow so long as there is spare capacity in the economy. In a nutshell, deficits do not matter until debt capacity is reached, which will be signaled by rising inflation.

Never mind that nary an agency has created a predictive model for inflation; at best one can back test a few variables, but these models collapse in real time. Neither the FED, the CBO, nor the major Wall Street banks have successfully modeled inflation – as such, our policy makers will only dial back a debt binge after inflation occurs. This sort of risk management is akin to racing a car down a foggy lane and not hitting the brakes until after one slams into a tree.

But MMT has arrived as a confluence of events are making economic demands on the Government that cannot be denied by a political class whose priority is reelection. The combination of a COVID support package, perhaps Millennial relief of college debt, and most important, the promise to Baby Boomers to fund Social Security (SS) will draw bipartisan votes in favor of a MMT-fiscal expansion.

Let’s be clear, MMT was coming with or without COVID, no matter who was elected President, but recent events have accelerated the process.

The high-end for a COVID relief package is tagged at $3Tn, and the notion of forgiving all college debt would cost $1.68Tn. But this is my bar bill at the club compared to the funding gap to support Social Security.

The chart above borrows from a scholarly report by James Moore, PhD. It shows the total US Treasury debt outstanding while the lines are the projected Social Security deficit. From the Social Security Trustees (SST), the orange line is their base-case while the gray line represents the SST’s high-risk scenario. Both were calculated using historical assumptions for interest rates, inflation, and economic growth.

The red line is the result of using current market-based inputs for interest rates and inflation. Notice how this estimate was between the SSTs base-case and high-risk scenarios until 2010, but impact of the Great Financial Crisis (GFC) exploded the future liability.

In case I was too coy, let’s link these thoughts. The US Government has run a cumulative deficit over the past 100 years of $22.7Tn; in contrast, to fully fund Social Security using current metrics would cost an additional $45.6Tn. Unless eligibility or benefits are significantly altered, some form of debt issuance that rhymes with MMT will be required.

The chart from the CBO offers a similar outlook as a percent of GDP. Notice the steep increase from 2030 to 2050 starts near 100% of GDP instead of closer to 40% of GDP before the GFC and COVID. These two events accelerated an already challenging decision process.

Here is the main point: This past decade’s money printing was used to purchase assets; this next decade’s money printing will be used to fund an expansive Fiscal policy which will funnel money into the hands of people who will spend it. Thus, the Velocity of money will increase and produce inflation.

By 2026 all of the Baby Boomers will qualify for Social Security, and the Millennials will be the largest voting cohort. Both will demand Fiscal support which can only be funded via MMT budgeted borrowing. The most prescient bond bulls (Lacy Hunt, David Rosenberg, Albert Edwards) have noted that the FED’s money creation has been a self-defeating process that may reduce rates further, with the caveat that direct monetization of fiscal spending could lead to inflation. In other words, direct funding the US Treasury.

This is a quibble that deserves a push. In the same way that one “borrows beer” at a party, having the Treasury wash their issuance through Wall Street dealers to the FED’s QE balance sheet is still “money printing”. The key difference is how those funds are used. Presently the FED’s asset purchases have coincided with reduced Velocity which dampened inflation; this will change when Fiscal money is directed toward those who will spend it upon receipt.

Modern Monetary Theory is nonsense; the excessive creation of a fiat currency (eventually) leads to inflation. If it did not, I can assure you there would be a shelf of books detailing such miracles over the past five thousand years of recorded history. “Stop eating when you are fat” is not a healthy diet.

Not to go native on you, but don’t you wonder why the Old Testament called for a trumpet to be sounded on the tenth day of the seventh month every 50 years for a Jubilee where all debts were cancelled ?

While it may take longer than I expect for the final denouement, mark this as the moment our political class shirked their duty to make the hard decisions.

Investment advice:

Don’t panic (yet) as MMT will be terrific for the first number of years. There will be a “sugar high” as expansive Fiscal policy transfuses money to those who will spend it. Similar to how corporate earnings expanded with the 2017 tax cut, so too should earnings enjoy the tailwind from Fiscal support to those who tend to spend.

College debt relief will initially increase retail sales, but will ultimately migrate towards home sales as this is the household formation demographic.

Developed Market (DM) Equities should do well, especially when the dividend yield for most DM Indices exceeds their Central Bank controlled rate.

I love Mortgage REITs despite a nice rally; their dividend yield is still ~9%. This payout should be stable if the FED keeps its promise of ZIRP until 2023.

Other ways of riding the FEDs rate suppression coattails can be sourced via well-managed BDCs and Muni CEFs that employ financial leverage. For CEFs, pay particular attention to the Undistributed Net Investment Income (UNII) as a deficit here usually presages a distribution cut.

I think it’s “safe in the pool” until 2023-25, then it will be adult swim only. This is why I own long-dated options to protect against rising interest rates – a product outlined in “Pigs Can Fly” – January 28, 2020, and I will detail again soon.

"If you tell a lie big enough and keep repeating it, people will eventually come to believe it…the truth is the mortal enemy of the lie." - Joseph Goebbels

You know my rejoinder: “It’s never different this time.”

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Are Voters Recoiling Against Disorder?

Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super…

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Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super Tuesday primaries have got it right. Barring cataclysmic changes, Donald Trump and Joe Biden will be the Republican and Democratic nominees for president in 2024.

(Left) President Joe Biden delivers remarks on canceling student debt at Culver City Julian Dixon Library in Culver City, Calif., on Feb. 21, 2024. (Right) Republican presidential candidate and former U.S. President Donald Trump stands on stage during a campaign event at Big League Dreams Las Vegas in Las Vegas, Nev., on Jan. 27, 2024. (Mario Tama/Getty Images; David Becker/Getty Images)

With Nikki Haley’s withdrawal, there will be no more significantly contested primaries or caucuses—the earliest both parties’ races have been over since something like the current primary-dominated system was put in place in 1972.

The primary results have spotlighted some of both nominees’ weaknesses.

Donald Trump lost high-income, high-educated constituencies, including the entire metro area—aka the Swamp. Many but by no means all Haley votes there were cast by Biden Democrats. Mr. Trump can’t afford to lose too many of the others in target states like Pennsylvania and Michigan.

Majorities and large minorities of voters in overwhelmingly Latino counties in Texas’s Rio Grande Valley and some in Houston voted against Joe Biden, and even more against Senate nominee Rep. Colin Allred (D-Texas).

Returns from Hispanic precincts in New Hampshire and Massachusetts show the same thing. Mr. Biden can’t afford to lose too many Latino votes in target states like Arizona and Georgia.

When Mr. Trump rode down that escalator in 2015, commentators assumed he’d repel Latinos. Instead, Latino voters nationally, and especially the closest eyewitnesses of Biden’s open-border policy, have been trending heavily Republican.

High-income liberal Democrats may sport lawn signs proclaiming, “In this house, we believe ... no human is illegal.” The logical consequence of that belief is an open border. But modest-income folks in border counties know that flows of illegal immigrants result in disorder, disease, and crime.

There is plenty of impatience with increased disorder in election returns below the presidential level. Consider Los Angeles County, America’s largest county, with nearly 10 million people, more people than 40 of the 50 states. It voted 71 percent for Mr. Biden in 2020.

Current returns show county District Attorney George Gascon winning only 21 percent of the vote in the nonpartisan primary. He’ll apparently face Republican Nathan Hochman, a critic of his liberal policies, in November.

Gascon, elected after the May 2020 death of counterfeit-passing suspect George Floyd in Minneapolis, is one of many county prosecutors supported by billionaire George Soros. His policies include not charging juveniles as adults, not seeking higher penalties for gang membership or use of firearms, and bringing fewer misdemeanor cases.

The predictable result has been increased car thefts, burglaries, and personal robberies. Some 120 assistant district attorneys have left the office, and there’s a backlog of 10,000 unprosecuted cases.

More than a dozen other Soros-backed and similarly liberal prosecutors have faced strong opposition or have left office.

St. Louis prosecutor Kim Gardner resigned last May amid lawsuits seeking her removal, Milwaukee’s John Chisholm retired in January, and Baltimore’s Marilyn Mosby was defeated in July 2022 and convicted of perjury in September 2023. Last November, Loudoun County, Virginia, voters (62 percent Biden) ousted liberal Buta Biberaj, who declined to prosecute a transgender student for assault, and in June 2022 voters in San Francisco (85 percent Biden) recalled famed radical Chesa Boudin.

Similarly, this Tuesday, voters in San Francisco passed ballot measures strengthening police powers and requiring treatment of drug-addicted welfare recipients.

In retrospect, it appears the Floyd video, appearing after three months of COVID-19 confinement, sparked a frenzied, even crazed reaction, especially among the highly educated and articulate. One fatal incident was seen as proof that America’s “systemic racism” was worse than ever and that police forces should be defunded and perhaps abolished.

2020 was “the year America went crazy,” I wrote in January 2021, a year in which police funding was actually cut by Democrats in New York, Los Angeles, San Francisco, Seattle, and Denver. A year in which young New York Times (NYT) staffers claimed they were endangered by the publication of Sen. Tom Cotton’s (R-Ark.) opinion article advocating calling in military forces if necessary to stop rioting, as had been done in Detroit in 1967 and Los Angeles in 1992. A craven NYT publisher even fired the editorial page editor for running the article.

Evidence of visible and tangible discontent with increasing violence and its consequences—barren and locked shelves in Manhattan chain drugstores, skyrocketing carjackings in Washington, D.C.—is as unmistakable in polls and election results as it is in daily life in large metropolitan areas. Maybe 2024 will turn out to be the year even liberal America stopped acting crazy.

Chaos and disorder work against incumbents, as they did in 1968 when Democrats saw their party’s popular vote fall from 61 percent to 43 percent.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Sat, 03/09/2024 - 23:20

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The…

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Department of Veterans Affairs (VA) reviewed no data when deciding in 2023 to keep its COVID-19 vaccine mandate in place.

Doses of a COVID-19 vaccine in Washington in a file image. (Jacquelyn Martin/Pool/AFP via Getty Images)

VA Secretary Denis McDonough said on May 1, 2023, that the end of many other federal mandates “will not impact current policies at the Department of Veterans Affairs.”

He said the mandate was remaining for VA health care personnel “to ensure the safety of veterans and our colleagues.”

Mr. McDonough did not cite any studies or other data. A VA spokesperson declined to provide any data that was reviewed when deciding not to rescind the mandate. The Epoch Times submitted a Freedom of Information Act for “all documents outlining which data was relied upon when establishing the mandate when deciding to keep the mandate in place.”

The agency searched for such data and did not find any.

The VA does not even attempt to justify its policies with science, because it can’t,” Leslie Manookian, president and founder of the Health Freedom Defense Fund, told The Epoch Times.

“The VA just trusts that the process and cost of challenging its unfounded policies is so onerous, most people are dissuaded from even trying,” she added.

The VA’s mandate remains in place to this day.

The VA’s website claims that vaccines “help protect you from getting severe illness” and “offer good protection against most COVID-19 variants,” pointing in part to observational data from the U.S. Centers for Disease Control and Prevention (CDC) that estimate the vaccines provide poor protection against symptomatic infection and transient shielding against hospitalization.

There have also been increasing concerns among outside scientists about confirmed side effects like heart inflammation—the VA hid a safety signal it detected for the inflammation—and possible side effects such as tinnitus, which shift the benefit-risk calculus.

President Joe Biden imposed a slate of COVID-19 vaccine mandates in 2021. The VA was the first federal agency to implement a mandate.

President Biden rescinded the mandates in May 2023, citing a drop in COVID-19 cases and hospitalizations. His administration maintains the choice to require vaccines was the right one and saved lives.

“Our administration’s vaccination requirements helped ensure the safety of workers in critical workforces including those in the healthcare and education sectors, protecting themselves and the populations they serve, and strengthening their ability to provide services without disruptions to operations,” the White House said.

Some experts said requiring vaccination meant many younger people were forced to get a vaccine despite the risks potentially outweighing the benefits, leaving fewer doses for older adults.

By mandating the vaccines to younger people and those with natural immunity from having had COVID, older people in the U.S. and other countries did not have access to them, and many people might have died because of that,” Martin Kulldorff, a professor of medicine on leave from Harvard Medical School, told The Epoch Times previously.

The VA was one of just a handful of agencies to keep its mandate in place following the removal of many federal mandates.

“At this time, the vaccine requirement will remain in effect for VA health care personnel, including VA psychologists, pharmacists, social workers, nursing assistants, physical therapists, respiratory therapists, peer specialists, medical support assistants, engineers, housekeepers, and other clinical, administrative, and infrastructure support employees,” Mr. McDonough wrote to VA employees at the time.

This also includes VA volunteers and contractors. Effectively, this means that any Veterans Health Administration (VHA) employee, volunteer, or contractor who works in VHA facilities, visits VHA facilities, or provides direct care to those we serve will still be subject to the vaccine requirement at this time,” he said. “We continue to monitor and discuss this requirement, and we will provide more information about the vaccination requirements for VA health care employees soon. As always, we will process requests for vaccination exceptions in accordance with applicable laws, regulations, and policies.”

The version of the shots cleared in the fall of 2022, and available through the fall of 2023, did not have any clinical trial data supporting them.

A new version was approved in the fall of 2023 because there were indications that the shots not only offered temporary protection but also that the level of protection was lower than what was observed during earlier stages of the pandemic.

Ms. Manookian, whose group has challenged several of the federal mandates, said that the mandate “illustrates the dangers of the administrative state and how these federal agencies have become a law unto themselves.”

Tyler Durden Sat, 03/09/2024 - 22:10

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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