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- Post #12,561
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- Mar 21, 2024 8:46pm Mar 21, 2024 8:46pm
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
- Post #12,562
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- Mar 21, 2024 8:50pm Mar 21, 2024 8:50pm
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
- MasterGamble
- | Joined Aug 2012 | Status: Member | 150 Posts
Most people don't have the correct pivots formula. Heck... SierraChart comes with like 20 pivot formulas and none of them were the proper formula.
If you have the proper formula the market will turn at the levels to the pip exactly during low momentum non news driven markets a statistically significant amount of times within a short amount of time. Thats how you confirm your formula is in sync with what the alogo's and automated trading systems are using.
I actually use a special projection system for estimating entry/exit price levels at my signals... But, things are definitely a lot easier with proper pivots too. Without proper daily pivots I definitely can see where I missed out on a few good trades in just the last week where pivot strength overrided my projections.
Attached Image (click to enlarge)
https://www.forexfactory.com/attachm...l?d=1365785583
- MasterGamble
- | Joined Aug 2012 | Status: Member | 150 Posts
If you don't see a statistically significant amount of precise to the pip or within a couple pip accuracy price turns on your daily/weekly pivots... Inside two days of price action... You have the wrong formula, or the wrong time zone...
Anyway... Nice to have my daily pivots working in Forex. Better than just having weekly and monthly!
And no... Brussels time zone is correct. London is not. Price turns and price reactions are not nearly as precise basing pivots off of the London time zone.
Attached Image (click to enlarge)
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- https://assets.faireconomy.media/nfs...ar168346_2.gif the redlion
- Joined Jan 2011 | Status: Member | 2,680 Posts
if NO ONE has the proper formula then NO ONE is using them then THEY ARE IRRELEVANT.
you forget participants move the market in search for allocation and equilibrium.
no one sits there with a hidden formula that can predict price movement.
if that was the case then the market would be independent of orders transacted....I do not see that being the case.
AVT INVENIAM VIAM AVT FACIAM
- MasterGamble
- | Joined Aug 2012 | Status: Member | 150 Posts
The automated alogos and the banks use this pivot system.
Anyway... It also matches with another system a large amount of professional traders are using. A large amount of people are using these pivots without realizing it.
- Post #12,563
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- Mar 21, 2024 9:07pm Mar 21, 2024 9:07pm
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
- Post #12,564
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- Edited 7:33am Mar 22, 2024 7:06am | Edited 7:33am
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
The Language of Force: How the Police State Muzzles Our Right to Speak Truth to Power – The Burning Platform
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The Language of Force: How the Police State Muzzles Our Right to Speak Truth to Power
Guest Post by John W. Whitehead
“If the state could use [criminal] laws not for their intended purposes but to silence those who voice unpopular ideas, little would be left of our First Amendment liberties, and little would separate us from the tyrannies of the past or the malignant fiefdoms of our age. The freedom to speak without risking arrest is ‘one of the principal characteristics by which we distinguish a free nation.’”—Justice Neil Gorsuch, dissenting, Nieves v. Bartlett (2019)
Tyrants don’t like people who speak truth to power.
Cue the rise of protest laws, which take the government’s intolerance for free speech to a whole new level and send the resounding message that resistance is futile.
In fact, ever since the Capitol protests on Jan. 6, 2021, state legislatures have introduced a broad array of these laws aimed at criminalizing protest activities.
There have been at least 205 proposed laws in 45 states aimed at curtailing the right to peacefully assemble and protest by expanding the definition of rioting, heightening penalties for existing offenses, or creating new crimes associated with assembly.
Weaponized by police, prosecutors, courts, and legislatures, these protest laws, along with free speech zones, bubble zones, trespass zones, anti-bullying legislation, zero tolerance policies, hate crime laws, and a host of other legalistic maladies have become a convenient means by which to punish individuals who refuse to be muzzled.
In Florida, for instance, legislators passed a “no-go” zone law making it punishable by up to 60 days in jail to remain within 25 feet of working police and other first responders after a warning.
Yet while the growing numbers of protest laws cropping up across the country are sold to the public as necessary to protect private property, public roads or national security, they are a wolf in sheep’s clothing, a thinly disguised plot to discourage anyone from challenging government authority at the expense of our First Amendment rights.
It doesn’t matter what the source of that discontent might be (police brutality, election outcomes, COVID-19 mandates, the environment, etc.): protest laws, free speech zones, no-go zones, bubble zones, trespass zones, anti-bullying legislation, zero tolerance policies, hate crime laws, etc., aim to muzzle every last one of us.
To be very clear, these legislative attempts to redefine and criminalize speech are a backdoor attempt to rewrite the Constitution and render the First Amendment’s robust safeguards null and void.
No matter how you package these laws, no matter how well-meaning they may sound, no matter how much you may disagree with the protesters or sympathize with the objects of the protest, these proposed laws are aimed at one thing only: discouraging dissent.
This is the painful lesson being imparted with every incident in which someone gets arrested and charged with any of the growing number of contempt charges (ranging from resisting arrest and interference to disorderly conduct, obstruction, and failure to obey a police order) that get trotted out anytime a citizen voices discontent with the government or challenges or even questions the authority of the powers-that-be.
These assaults on free speech are nothing new.
As Human Rights Watch points out, “Various states have long tried to curtail the right to protest. They do so by legislating wide definitions of what constitutes an ‘unlawful assembly’ or a ‘riot’ as well as increasing punishments. They also allow police to use catch-all public offenses, such as trespassing, obstructing traffic, or disrupting the peace, as a pretext for ordering dispersals, using force, and making arrests. Finally, they make it easier for corporations and others to bring lawsuits against protest organizers.”
Journalists have come under particular fire for exercising their right to freedom of the press.
According to the U.S. Press Freedom Tracker, the criminalization of routine journalism has become a means by which the government chills lawful First Amendment activity.
Journalists have been arrested or faced dubious charges for “publishing,” asking too many questions of public officials, being “rude” for reporting during a press conference and being in the vicinity of public protests and demonstrations.
For instance, Steve Baker, a reporter for Blaze News, was charged with four misdemeanors, including trespassing and disorderly conduct charges, related to his sympathetic coverage of the Jan. 6 riots. Dan Heyman, a reporter for the Public News Service, was arrested for “aggressively” questioning Tom Price, then secretary of the Department of Health and Human Services during an encounter in the West Virginia State Capitol.
It’s gotten so bad that merely daring to question, challenge, or hesitate when a cop issues an order can get you charged with resisting arrest or disorderly conduct.
For example, Deyshia Hargrave, a language arts teacher in Louisiana, was thrown to the ground, handcuffed, and arrested for speaking out during a public comment period at a school board meeting.
Fane Lozman was arrested for alluding to government corruption during open comment time at a City Council meeting in Palm Beach County, Fla.
College professor Ersula Ore was slammed to the ground and arrested after she objected to the “disrespectful manner” shown by a campus cop who stopped her in the middle of the street and demanded that she show her ID.
Philadelphia lawyer Rebecca Musarra was arrested for exercising her right to remain silent and refusing to answer questions posed by a police officer during a routine traffic stop. (Note: she cooperated in every other way by providing license and registration, etc.)
Making matters worse, the U.S. Supreme Court issued a ruling in Nieves v. Bartlett that protects police from lawsuits by persons arrested on bogus “contempt of cop” charges (ranging from resisting arrest and interference to disorderly conduct, obstruction, and failure to obey a police order) that result from lawful First Amendment activities (filming police, asking a question of police, refusing to speak with police).
These incidents reflect a growing awareness about the state of free speech in America: you may have distinct, protected rights on paper, but dare to exercise those rights, and you risk fines, arrests, injuries, and even death.
Unfortunately, we have been circling this particular drain hole for some time now.
More than 50 years ago, U.S. Supreme Court Justice William O. Douglas took issue with the idea that merely speaking to a government representative (a right enshrined in the First Amendment) could be perceived as unlawfully inconveniencing and annoying the police.
In a passionate defense of free speech, Douglas declared:
Since when have we Americans been expected to bow submissively to authority and speak with awe and reverence to those who represent us?
The constitutional theory is that we the people are the sovereigns, the state and federal officials only our agents. We who have the final word can speak softly or angrily. We can seek to challenge and annoy, as we need not stay docile and quiet. The situation might have indicated that Colten’s techniques were ill-suited to the mission he was on, and that diplomacy would have been more effective. But at the constitutional level speech need not be a sedative; it can be disruptive.
It’s a power-packed paragraph full of important truths that the powers-that-be would prefer we quickly forget: We the people are the sovereigns. We have the final word. We can speak softly or angrily. We can seek to challenge and annoy. We need not stay docile and quiet. Our speech can be disruptive. It can invite disputes. It can be provocative and challenging. We do not have to bow submissively to authority or speak with reverence to government officials.
In theory, Douglas was right: “We the people” do have a constitutional right to talk back to the government.
In practice, however, we live in an age in which “we the people” are at the mercy of militarized, weaponized, immunized cops who have almost absolute discretion to decide who is a threat, what constitutes resistance, and how harshly they can deal with the citizens they were appointed to “serve and protect.”
As such, those who seek to exercise their First Amendment rights during encounters with the police are increasingly finding that there is no such thing as freedom of speech.
Case in point: Tony Rupp, a lawyer in Buffalo, NY, found himself arrested and charged with violating the city’s noise ordinance after cursing at an SUV bearing down on pedestrians on a busy street at night with its lights off. Because that unmarked car was driven by a police officer, that’s all it took for Rupp to find himself subjected to malicious prosecution, First Amendment retaliation, and wrongful arrest.
The case, as Jesse McKinley writes in The New York Times, is part of a growing debate over “how citizens can criticize public officials at a time of widespread reevaluation of the lengths and limits of free speech. That debate has raged everywhere from online forums and college campuses to protests over racial bias in law enforcement and the Israel-Hamas war. Book bans and other acts of government censorship have troubled some First Amendment experts. Last week, the Supreme Court heard arguments about a pair of laws — in Florida and Texas — limiting the ability of social media companies such as Facebook to ban certain content from their platforms.”
Bottom line: what the architects of the police state want are submissive, compliant, cooperative, obedient, meek citizens who don’t talk back, don’t challenge government authority, don’t speak out against government misconduct, and don’t resist.
What the First Amendment protects—and a healthy constitutional republic requires—are citizens who routinely exercise their right to speak truth to power.
Yet there can be no free speech for the citizenry when the government speaks in a language of force.
What is this language of force?
Militarized police. Riot squads. Camouflage gear. Black uniforms. Armored vehicles. Mass arrests. Pepper spray. Tear gas. Batons. Strip searches. Surveillance cameras. Kevlar vests. Drones. Lethal weapons. Less-than-lethal weapons unleashed with deadly force. Rubber bullets. Water cannons. Stun grenades. Arrests of journalists. Crowd control tactics. Intimidation tactics. Brutality. Contempt of cop charges.
This is not the language of freedom. This is not even the language of law and order.
Unfortunately, this is how the government at all levels—federal, state, and local—now responds to those who choose to exercise their First Amendment right to speak freely.
If we no longer have the right to tell a Census Worker to get off our property, if we no longer have the right to tell a police officer to get a search warrant before they dare to walk through our door, if we no longer have the right to stand in front of the Supreme Court wearing a protest sign or approach an elected representative to share our views, if we no longer have the right to protest unjust laws by voicing our opinions in public or on our clothing or before a legislative body, then we do not have free speech.
What we have instead is regulated, controlled, censored speech, and that’s a whole other ballgame.
Remember, the unspoken freedom enshrined in the First Amendment is the right to challenge government agents, think freely, and openly debate issues without being muzzled or treated like a criminal.
Americans are being brainwashed into believing that anyone who wears a government uniform—soldier, police officer, prison guard—must be obeyed without question.
Of course, the Constitution takes a far different position, but does anyone in the government even read, let alone abide by, the Constitution anymore?
The government does not want us to remember that we have rights, let alone attempt to exercise those rights peacefully and lawfully. It does not want us to engage in First Amendment activities that challenge the government’s power, reveal the government’s corruption, expose the government’s lies, and encourage the citizenry to push back against the government’s many injustices.
https://www.theburningplatform.com/w...t-728x90-1.gif
Yet by muzzling the citizenry, by removing the constitutional steam valves that allow people to speak their minds, air their grievances, and contribute to a larger dialogue that hopefully results in a more just world, the government is creating a climate in which violence becomes inevitable.
When there is no First Amendment steam valve, then frustration builds, anger grows and people become more volatile and desperate to force a conversation.
As John F. Kennedy warned, “Those who make peaceful revolution impossible will make violent revolution inevitable.”
As I point out in my book Battlefield America: The War on the American People and in its fictional counterpart The Erik Blair Diaries, the government is making violent revolution inevitable.
https://www.theburningplatform.com/w...er-for-tbp.png
The Language of Force: How the Police State Muzzles Our Right to Speak Truth to Power
Guest Post by John W. Whitehead
“If the state could use [criminal] laws not for their intended purposes but to silence those who voice unpopular ideas, little would be left of our First Amendment liberties, and little would separate us from the tyrannies of the past or the malignant fiefdoms of our age. The freedom to speak without risking arrest is ‘one of the principal characteristics by which we distinguish a free nation.’”—Justice Neil Gorsuch, dissenting, Nieves v. Bartlett (2019)
Tyrants don’t like people who speak truth to power.
Cue the rise of protest laws, which take the government’s intolerance for free speech to a whole new level and send the resounding message that resistance is futile.
In fact, ever since the Capitol protests on Jan. 6, 2021, state legislatures have introduced a broad array of these laws aimed at criminalizing protest activities.
There have been at least 205 proposed laws in 45 states aimed at curtailing the right to peacefully assemble and protest by expanding the definition of rioting, heightening penalties for existing offenses, or creating new crimes associated with assembly.
Weaponized by police, prosecutors, courts, and legislatures, these protest laws, along with free speech zones, bubble zones, trespass zones, anti-bullying legislation, zero tolerance policies, hate crime laws, and a host of other legalistic maladies have become a convenient means by which to punish individuals who refuse to be muzzled.
In Florida, for instance, legislators passed a “no-go” zone law making it punishable by up to 60 days in jail to remain within 25 feet of working police and other first responders after a warning.
Yet while the growing numbers of protest laws cropping up across the country are sold to the public as necessary to protect private property, public roads or national security, they are a wolf in sheep’s clothing, a thinly disguised plot to discourage anyone from challenging government authority at the expense of our First Amendment rights.
It doesn’t matter what the source of that discontent might be (police brutality, election outcomes, COVID-19 mandates, the environment, etc.): protest laws, free speech zones, no-go zones, bubble zones, trespass zones, anti-bullying legislation, zero tolerance policies, hate crime laws, etc., aim to muzzle every last one of us.
To be very clear, these legislative attempts to redefine and criminalize speech are a backdoor attempt to rewrite the Constitution and render the First Amendment’s robust safeguards null and void.
No matter how you package these laws, no matter how well-meaning they may sound, no matter how much you may disagree with the protesters or sympathize with the objects of the protest, these proposed laws are aimed at one thing only: discouraging dissent.
This is the painful lesson being imparted with every incident in which someone gets arrested and charged with any of the growing number of contempt charges (ranging from resisting arrest and interference to disorderly conduct, obstruction, and failure to obey a police order) that get trotted out anytime a citizen voices discontent with the government or challenges or even questions the authority of the powers-that-be.
These assaults on free speech are nothing new.
As Human Rights Watch points out, “Various states have long tried to curtail the right to protest. They do so by legislating wide definitions of what constitutes an ‘unlawful assembly’ or a ‘riot’ as well as increasing punishments. They also allow police to use catch-all public offenses, such as trespassing, obstructing traffic, or disrupting the peace, as a pretext for ordering dispersals, using force, and making arrests. Finally, they make it easier for corporations and others to bring lawsuits against protest organizers.”
Journalists have come under particular fire for exercising their right to freedom of the press.
According to the U.S. Press Freedom Tracker, the criminalization of routine journalism has become a means by which the government chills lawful First Amendment activity.
Journalists have been arrested or faced dubious charges for “publishing,” asking too many questions of public officials, being “rude” for reporting during a press conference and being in the vicinity of public protests and demonstrations.
For instance, Steve Baker, a reporter for Blaze News, was charged with four misdemeanors, including trespassing and disorderly conduct charges, related to his sympathetic coverage of the Jan. 6 riots. Dan Heyman, a reporter for the Public News Service, was arrested for “aggressively” questioning Tom Price, then secretary of the Department of Health and Human Services during an encounter in the West Virginia State Capitol.
It’s gotten so bad that merely daring to question, challenge, or hesitate when a cop issues an order can get you charged with resisting arrest or disorderly conduct.
For example, Deyshia Hargrave, a language arts teacher in Louisiana, was thrown to the ground, handcuffed, and arrested for speaking out during a public comment period at a school board meeting.
Fane Lozman was arrested for alluding to government corruption during open comment time at a City Council meeting in Palm Beach County, Fla.
College professor Ersula Ore was slammed to the ground and arrested after she objected to the “disrespectful manner” shown by a campus cop who stopped her in the middle of the street and demanded that she show her ID.
Philadelphia lawyer Rebecca Musarra was arrested for exercising her right to remain silent and refusing to answer questions posed by a police officer during a routine traffic stop. (Note: she cooperated in every other way by providing license and registration, etc.)
Making matters worse, the U.S. Supreme Court issued a ruling in Nieves v. Bartlett that protects police from lawsuits by persons arrested on bogus “contempt of cop” charges (ranging from resisting arrest and interference to disorderly conduct, obstruction, and failure to obey a police order) that result from lawful First Amendment activities (filming police, asking a question of police, refusing to speak with police).
These incidents reflect a growing awareness about the state of free speech in America: you may have distinct, protected rights on paper, but dare to exercise those rights, and you risk fines, arrests, injuries, and even death.
Unfortunately, we have been circling this particular drain hole for some time now.
More than 50 years ago, U.S. Supreme Court Justice William O. Douglas took issue with the idea that merely speaking to a government representative (a right enshrined in the First Amendment) could be perceived as unlawfully inconveniencing and annoying the police.
In a passionate defense of free speech, Douglas declared:
Since when have we Americans been expected to bow submissively to authority and speak with awe and reverence to those who represent us?
The constitutional theory is that we the people are the sovereigns, the state and federal officials only our agents. We who have the final word can speak softly or angrily. We can seek to challenge and annoy, as we need not stay docile and quiet. The situation might have indicated that Colten’s techniques were ill-suited to the mission he was on, and that diplomacy would have been more effective. But at the constitutional level speech need not be a sedative; it can be disruptive.
It’s a power-packed paragraph full of important truths that the powers-that-be would prefer we quickly forget: We the people are the sovereigns. We have the final word. We can speak softly or angrily. We can seek to challenge and annoy. We need not stay docile and quiet. Our speech can be disruptive. It can invite disputes. It can be provocative and challenging. We do not have to bow submissively to authority or speak with reverence to government officials.
In theory, Douglas was right: “We the people” do have a constitutional right to talk back to the government.
In practice, however, we live in an age in which “we the people” are at the mercy of militarized, weaponized, immunized cops who have almost absolute discretion to decide who is a threat, what constitutes resistance, and how harshly they can deal with the citizens they were appointed to “serve and protect.”
As such, those who seek to exercise their First Amendment rights during encounters with the police are increasingly finding that there is no such thing as freedom of speech.
Case in point: Tony Rupp, a lawyer in Buffalo, NY, found himself arrested and charged with violating the city’s noise ordinance after cursing at an SUV bearing down on pedestrians on a busy street at night with its lights off. Because that unmarked car was driven by a police officer, that’s all it took for Rupp to find himself subjected to malicious prosecution, First Amendment retaliation, and wrongful arrest.
The case, as Jesse McKinley writes in The New York Times, is part of a growing debate over “how citizens can criticize public officials at a time of widespread reevaluation of the lengths and limits of free speech. That debate has raged everywhere from online forums and college campuses to protests over racial bias in law enforcement and the Israel-Hamas war. Book bans and other acts of government censorship have troubled some First Amendment experts. Last week, the Supreme Court heard arguments about a pair of laws — in Florida and Texas — limiting the ability of social media companies such as Facebook to ban certain content from their platforms.”
Bottom line: what the architects of the police state want are submissive, compliant, cooperative, obedient, meek citizens who don’t talk back, don’t challenge government authority, don’t speak out against government misconduct, and don’t resist.
What the First Amendment protects—and a healthy constitutional republic requires—are citizens who routinely exercise their right to speak truth to power.
Yet there can be no free speech for the citizenry when the government speaks in a language of force.
What is this language of force?
Militarized police. Riot squads. Camouflage gear. Black uniforms. Armored vehicles. Mass arrests. Pepper spray. Tear gas. Batons. Strip searches. Surveillance cameras. Kevlar vests. Drones. Lethal weapons. Less-than-lethal weapons unleashed with deadly force. Rubber bullets. Water cannons. Stun grenades. Arrests of journalists. Crowd control tactics. Intimidation tactics. Brutality. Contempt of cop charges.
This is not the language of freedom. This is not even the language of law and order.
Unfortunately, this is how the government at all levels—federal, state, and local—now responds to those who choose to exercise their First Amendment right to speak freely.
If we no longer have the right to tell a Census Worker to get off our property, if we no longer have the right to tell a police officer to get a search warrant before they dare to walk through our door, if we no longer have the right to stand in front of the Supreme Court wearing a protest sign or approach an elected representative to share our views, if we no longer have the right to protest unjust laws by voicing our opinions in public or on our clothing or before a legislative body, then we do not have free speech.
What we have instead is regulated, controlled, censored speech, and that’s a whole other ballgame.
Remember, the unspoken freedom enshrined in the First Amendment is the right to challenge government agents, think freely, and openly debate issues without being muzzled or treated like a criminal.
Americans are being brainwashed into believing that anyone who wears a government uniform—soldier, police officer, prison guard—must be obeyed without question.
Of course, the Constitution takes a far different position, but does anyone in the government even read, let alone abide by, the Constitution anymore?
The government does not want us to remember that we have rights, let alone attempt to exercise those rights peacefully and lawfully. It does not want us to engage in First Amendment activities that challenge the government’s power, reveal the government’s corruption, expose the government’s lies, and encourage the citizenry to push back against the government’s many injustices.
https://www.theburningplatform.com/w...t-728x90-1.gif
Yet by muzzling the citizenry, by removing the constitutional steam valves that allow people to speak their minds, air their grievances, and contribute to a larger dialogue that hopefully results in a more just world, the government is creating a climate in which violence becomes inevitable.
When there is no First Amendment steam valve, then frustration builds, anger grows and people become more volatile and desperate to force a conversation.
As John F. Kennedy warned, “Those who make peaceful revolution impossible will make violent revolution inevitable.”
As I point out in my book Battlefield America: The War on the American People and in its fictional counterpart The Erik Blair Diaries, the government is making violent revolution inevitable.
- Post #12,565
- Quote
- Edited 8:17am Mar 22, 2024 7:58am | Edited 8:17am
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
Allison Hanes: Housefather is down, but not out | Montreal Gazette
Allison Hanes: MP Anthony Housefather is down, but not out
The MP for Mount Royal is reflecting on whether he still belongs in the Liberal Party after a "deeply hurtful" vote by the House of Commons on the Israel-Hamas war.
Author of the article:
Allison Hanes • Montreal Gazette
March 21, 2024
https://smartcdn.gprod.postmedia.dig...2HUFAgFgxiPezA
"Like most English-speaking Montrealer's, I’ve been a Liberal reflexively because I believed the Liberal Party is the one that has protected minority rights in Quebec better than others," Housefather said. "And with what happened last year on the language bill, with what’s happening here, I’m having a very serious reflection as to whether that’s still the case.” PHOTO BY JOHN KENNEY /Montreal Gazette files
No one can accuse Anthony Housefather, the Liberal MP for Mount Royal, of hiding what he stands for — even when his positions aren’t popular.
'I am a Canadian, I am a Jew and I am a Zionist': Liberal MP condemns motion that 'rewards Hamas'
https://dcs-static.gprod.postmedia.d...lose-black.svg
He was the lone vote against the Liberal government’s update of the Official Languages Act, adopted last year — bucking the party line because he felt references to Quebec’s controversial Bill 96 in the federal legislation sold out the anglophone community. For sticking his neck out, he was stripped of his parliamentary secretary role (although later reinstated), but worse, he was unfairly vilified for being anti-francophone.
TRENDING
Allison Hanes: MP Anthony Housefather is down, but not out
The MP for Mount Royal is reflecting on whether he still belongs in the Liberal Party after a "deeply hurtful" vote by the House of Commons on the Israel-Hamas war.
Author of the article:
Allison Hanes • Montreal Gazette
March 21, 2024
https://smartcdn.gprod.postmedia.dig...2HUFAgFgxiPezA
"Like most English-speaking Montrealer's, I’ve been a Liberal reflexively because I believed the Liberal Party is the one that has protected minority rights in Quebec better than others," Housefather said. "And with what happened last year on the language bill, with what’s happening here, I’m having a very serious reflection as to whether that’s still the case.” PHOTO BY JOHN KENNEY /Montreal Gazette files
No one can accuse Anthony Housefather, the Liberal MP for Mount Royal, of hiding what he stands for — even when his positions aren’t popular.
'I am a Canadian, I am a Jew and I am a Zionist': Liberal MP condemns motion that 'rewards Hamas'
https://dcs-static.gprod.postmedia.d...lose-black.svg
He was the lone vote against the Liberal government’s update of the Official Languages Act, adopted last year — bucking the party line because he felt references to Quebec’s controversial Bill 96 in the federal legislation sold out the anglophone community. For sticking his neck out, he was stripped of his parliamentary secretary role (although later reinstated), but worse, he was unfairly vilified for being anti-francophone.
TRENDING
- Quebec doctors sign open letter demanding ceasefire in Gaza
https://smartcdn.gprod.postmedia.dig...WsjjPwJc18fzhw - Brian Mulroney’s casket arrives in Montreal church ahead of Saturday’s state funeral
https://smartcdn.gprod.postmedia.dig...auP2tBskTBi9ag - D.D.O. resident loses years-long fight over $13,000 in car shelter fines
https://smartcdn.gprod.postmedia.dig...XOwXXH6SzQQJoA - Montreal police and the OPP are conducting a joint operation in the city
https://smartcdn.gprod.postmedia.dig...SBK18bB5GYgyig - La Presse apologizes after cartoon is denounced as antisemitic
https://smartcdn.gprod.postmedia.dig...B_yUqu80sDKeVw
On Monday, he found himself out of step with his party again, when he was one of three Liberals who voted against a watered-down version of a New Democratic Party opposition day motion that originally called for Canada to recognize a Palestinian state, a clear departure from this country’s longtime foreign policy.
When he rose in the House of Commons, Housefather offered a passionate defense of Israel at a time when world sympathy in the aftermath of Hamas’s attack is shifting, with more than 31,000 Palestinians killed in the war in Gaza and the risk of famine rising among the more than a million displaced.
“I am a Canadian. I am a Jew. I am a Zionist,” Housefather began, giving voice to a Jewish community that is still in shock since about 1,200 Israelis were massacred by Hamas and as many as 250 hostages were taken to Gaza, over 100 of whom remain captive. Many Canadian Jews feel under siege for supporting Israel’s right to exist and defend itself, as virulent antisemitism rises in Canada and attacks target schools and synagogues in Montreal.
“Right now, the Jewish community is demoralized and intimidated,” said Housefather, one of only eight Jewish MPs. “This motion would create one winner and one loser. Most Canadian Muslims will vastly support this motion. They are feeling lots of pain right now, watching the events that are happening in Gaza. If this motion is adopted, Canadian Jews will feel tremendous pain because the way the motion is constructed would create a false equivalency between the state of Israel and the terrorist organization Hamas.”
He said unilaterally recognizing a Palestinian state would “reward” Hamas for carrying out “the deadliest pogrom against Jews since the Holocaust” and abandon Israel, “our democratic ally and our friend.”
But after a heavily amended text more in line with Canada’s position — a negotiated two-state solution to the Israeli-Palestinian conflict, a ceasefire in Gaza, and a ban on selling arms to Israel — was adopted 204-117, what hurt Housefather more was that many of his fellow Liberals gave a standing ovation to the NDP MP who moved the original.
Housefather isn’t concealing his feelings of betrayal. He left the chamber that night and finished voting electronically. He is now reflecting on whether he still belongs in the Liberal Party.
https://smartcdn.gprod.postmedia.dig...-PqQ54z_t2-Idg
Liberal MP for Mount Royal Anthony Housefather speaks with reporters as he makes his way to Question Period, Tuesday, March 19, 2024, in Ottawa. PHOTO BY ADRIAN WYLD /The Canadian Press
“My main question is whether my values and my views today fit,” he said in an interview. “I never fit in a box. Like most English-speaking Montrealer's, I’ve been a Liberal reflexively because I believe the Liberal Party is the one that has protected minority rights in Quebec better than others. And with what happened last year on the language bill, with what’s happening here, I’m having a very serious reflection as to whether that’s still the case.”
Housefather said there’s no point in denying his sense of isolation.
“Most politicians would never say this. I just always believe in being an open book. I think that’s what I think makes me more genuine if people know what I think. So I’m in a period of reflection, and I think there’s a lot of other people out there who are in a period of reflection,” he said. “I never hide what I believe and I never shirk from my principles.”
Housefather acknowledged that the non-binding motion that passed after much horse-trading between the Liberals and the NDP was an improvement on the original. But he deplored the way the final version was tabled at the last minute, preventing Eglinton-Lawrence MP Marco Mendicino (one of the other Liberal nay votes) from speaking and without allowing time for proper study or understanding.
“That is absurd, ridiculous protocol,” he said. “So regardless of my feelings about the substance, the process was wrong.”
For the record, Housefather supports a two-state solution to the Israeli-Palestinian conflict. He believes lasting peace must be achieved through negotiations by the parties, in keeping with the principles of the landmark Oslo Accords of the 1990s.
But Housefather said the vote — and all the drama surrounding it — never should have happened.
“When there’s an opposition day motion that goes against Liberal policy, that goes against government policy, the government’s position is 99.9 per cent of the time: Just vote it down,” he said.
This is what he told Foreign Affairs Minister Mélanie Joly and Prime Minister Justin Trudeau when he first found out about the NDP motion, which was delayed by tributes to the late former prime minister Brian Mulroney.
But they decided otherwise, as the Trudeau government attempts to walk a tightrope to avoid angering either pro-Palestinian or pro-Israel supporters, but ends up pleasing neither.
The same balancing act is happening in the U.S., where, entering a critical election year, President Joe Biden’s staunch support of Israel in the wake of Oct. 7 is being eroded by fierce criticism of Israeli Prime Minister Benjamin Netanyahu’s quest for “total victory” in Gaza, resistance to a truce, and post-war plans many describe as unfeasible.
Senate majority leader Chuck Schumer, the highest-ranking Jewish official in the U.S., is so frustrated with Netanyahu for being an impediment to peace he went so far as to call for his replacement, drawing accusations of interference in a fellow democracy and rebukes from Republicans.
But even political leaders abroad who have traditionally backed Israel are increasingly sensitive to the turning tide of public opinion at home — and unable to ignore the humanitarian catastrophe unfolding in Gaza.
The same rifts are straining the Liberal caucus, as the minority government is pulled in one direction by its alliance with the NDP, while watching the Conservatives soar in the polls.
That’s why so much is at stake in Housefather’s choice.
Will he go independent? Will he join the Conservatives, who voted against the amended NDP motion? Not only is the château-fort riding of Mount Royal in play, but potentially much of the Jewish vote in Canada.
“The Jewish community is not monolithic and certainly, over recent years, the community has been half and half over whether they identify with the Liberals or the Conservatives or whatever,” Housefather said. “I think most people who identify with the Liberals are having the same struggles right now as I am.”
Housefather said he hasn’t given himself a timeline for making a decision about his future.
“I want to know if I fit and I want to know which way the party is moving, the caucus is moving, and whether my views and values and, more importantly, my constituents’ views and values, still best fit there,” he said. “Because whatever I am, I’ve won nine elections in this riding, both municipal and federal, because I think I am an average person from the riding. And when I speak, I speak for the average person.”
One thing is certain, he said: “I’m staying in politics. I’m running for re-election in Mount Royal. Let there be no doubt about that.
“I believe I am the best spokesperson for the people of Mount Royal and I think most of them think that I am. They know I will fight for them on language, on other issues. And whether people agree with me or not — because sometimes people don’t agree with me on these issues — at least they know I’m a person who will say exactly what I believe, and they can respect me for that.”
[email protected]
Text of the motion passed in the House of Commons
As moved by NDP MP for Edmonton-Strathcona, Heather McPherson and subsequently amended:
That, given that,
(i) the situation in the Middle East is devastating to many Canadians, particularly those with friends and family members in the region,
(ii) the death toll in Gaza has surpassed 30,000, with 70% of the victims being women and children,
(iii) Hamas is a listed terrorist organization in Canada whose attacks on October 7, 2023, killed nearly 1,200 Israelis and that over 100 hostages remain in Hamas captivity,
(iv) 1.7 million residents of Gaza are displaced and at risk of starvation, death, and disease, and Gaza is currently the most dangerous place in the world to be a child,
(v) the United Nations reports over 70 per cent of civilian infrastructure in Gaza, including homes, hospitals, schools, water and sanitation facilities, have been destroyed or severely damaged by Israeli military attacks,
(vi) on January 26, 2024, the International Court of Justice ordered six provisional measures, including for Israel to refrain from acts under the Genocide convention, prevent and punish the direct and public incitement to genocide, and take immediate and effective measures to ensure the provision of humanitarian assistance to civilians in Gaza,
(vii) all states, including Israel have a right to defend themselves and in defending itself, Israel must respect international humanitarian law and the price of defeating Hamas cannot be the continuous suffering of all Palestinian civilians,
(viii) Israelis are still at risk of attacks by Iran-backed terrorist groups including Hamas and Hezbollah,
(ix) the increase in extremist settler violence against Palestinians and reports of Palestinian communities being forcibly removed from their lands in the West Bank,
(x) the casualties of the war on Gaza and the Hamas terrorist attack include Canadian citizens,
(xi) Canadian citizens remain trapped in Gaza, blocked from leaving,
(xii) Jewish, Muslim, Arab, and Palestinian Canadians have reported an increase in hate-motivated attacks and racism since October,
(xiii) Palestinians and Israelis both deserve to live in peace, with full enjoyment of their human rights and democratic freedoms,
the House call on the government to:
(a) demand an immediate ceasefire, the release of all hostages, and Hamas must lay down its arms;
(b) cease the further authorization and transfer of arms exports to Israel to ensure compliance with Canada’s arms export regime and increase efforts to stop the illegal trade of arms, including to Hamas;
(c) ensure continued funding to the United Nations Relief and Works Agency (UNRWA) to meet the dire humanitarian need, engage with the United Nations internal investigation and independent review process, and ensure implementation of necessary long-term governance reforms and accountability measures;
(d) support the prosecution of all crimes and violations of international law committed in the region;
(e) support the work of the International Court of Justice and the International Criminal Court;
(f) demand unimpeded humanitarian access to Gaza;
(g) ensure Canadians trapped in Gaza can reach safety in Canada and expand access to the temporary resident visa program;
(h) sanction extremist settlers and maintain sanctions on Hamas leaders;
(i) reaffirm that settlements are illegal under international law and that settlements and settler violence are serious obstacles to a negotiated two-state solution, and advocate for an end to the decades-long occupation of Palestinian territories; and
(j) work with international partners to actively pursue the goal of a comprehensive, just, and lasting peace in the Middle East, including towards the establishment of the State of Palestine as part of a negotiated two-state solution, and maintain Canada’s position that Israel has a right to exist in peace and security with its neighbors.
- Yea: 204 (146 Liberal, 30 Bloc Québécois, 24 NDP, 2 Green, 2 independent)
- Nay: 117 (113 Conservative, 3 Liberal, 1 independent)
- Paired: 2
- Total: 321
READ AND EDITED BY Benjamin Israel Margolese
- Post #12,566
- Quote
- Edited 8:49am Mar 22, 2024 8:36am | Edited 8:49am
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
Caution: Black Swan Crossing - by Quoth the Raven (substack.com)
Caution: Black Swan Crossing
It is going to be difficult to conjure up animal spirits when 1/7th of the magnificent 7 is bedridden with fleas.
https://substackcdn.com/image/fetch/...8ecd_63x61.png
QUOTH THE RAVEN
MAR 22, 2024
11
It’s an interesting juxtaposition when a black swan that you expected crosses your path but looks a bit different than you had previously suspected it would.
This was exactly the case yesterday when the Department of Justice brought its “landmark” antitrust lawsuit against Apple. At first, I wrote it off as just yet another antitrust case that would eventually be settled and become ancient history. After all, antitrust headlines hit the wire what seems like every single day. As a market observer, it is pretty routine, and I don’t pay much attention to them. Here’s yesterday’s story from CNBC:
The Department of Justice sued Apple on Thursday, saying its iPhone ecosystem is a monopoly that drove its “astronomical valuation” at the expense of consumers, developers, and rival phone makers.
The government has not ruled out breaking up one of the largest companies in the world, with a Justice Department official saying on a briefing call that structural relief was on the table if the U.S. were to win.
The lawsuit claims Apple’s anti-competitive practices extend beyond the iPhone and Apple Watch businesses, citing Apple’s advertising, browser, FaceTime, and news offerings.
“Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly,” according to the suit, filed by the DOJ and 16 attorneys general in New Jersey federal court.
Forgive me for asking, but isn’t ‘winning’ at the expense of rival product makers what the business world is all about?
This is a sprawling suit that didn’t raise any issues I found alarming. But maybe this is just because I am a happy iPhone user and former Apple employee who generally likes their products. I know that I certainly never felt as though I was using Apple products because they had some type of monopoly; I always just used them because I thought they were better than whatever else was out there.
But I’m not here to argue the merits of the case or play judge and jury. That will play out in court and in a long legal battle that will likely end in some type of settlement several years from now after both sides jostle back and forth and make their respective arguments.
I am, however, really interested in this case due to the chilling effect it could have on Apple as an investment. It was revealed yesterday that, as part of the potential outcomes for the case, Apple could be forced to subdivide its businesses or split off portions of its business. This reminded me a lot of the famed antitrust suit lodged against Microsoft back in 2001. I went back to read about that suit, which ultimately saw its decree take 10 years to pass and noticed that Microsoft stock hardly moved in the decade from the time the suit was brought until the time the decree expired. While Microsoft was busy resolving the suit, Apple and Google took flight as competitors:
The case marks one of the most important turning points in Microsoft’s history, up there with its first agreement to build an operating system for IBM and the introduction of the first version of Windows that featured graphic icons.
While the technology landscape has left the browser wars at the heart of the dispute far behind, and Microsoft continues to make billions from Windows and Office, the case left deep scars.
When the settlement of the landmark antitrust lawsuit against the company was proposed on Nov. 2, 2001, the stock traded at $27.63 a share. On Wednesday the stock closed at $25.36 per share.
Meanwhile, competitors like Apple have soared and new rivals like Google have taken flight. — Seattle Times, May 11, 2011
Granted, it was a time that encompassed the post-2000 bubble crash and the 2008 housing crisis. But it started to make me think more about the case I had previously made about Apple potentially being a black swan back in September of last year:
A Second Black Swan For Markets Emerges
QUOTH THE RAVEN
·
SEPTEMBER 11, 2023
Read full story
As I noted on this blog, Apple is as close to being the quintessential American stock as you can get. It’s a component in almost any ETF you can think of and is held so widely that even entities like the Swiss National Bank hold it on their balance sheet. It is a dividend payer, it is replete with cash, it makes products that almost everybody owns, and has simply become the king of technology and the king of smartphones.
Again, this is a position I believe it has earned for itself by creating a superior product. I worked for Apple during the first iPhone launch, and I remember using one for the first time and having my hair blown back. I thought to myself, “This is unlike anything the world has ever seen.”
And so, because the product was so exceptionally innovative, Apple has earned its place at the top as the king of the mountain. Following suit, Apple stock has also earned its place at the top of the heap.
https://substackcdn.com/image/fetch/...17_728x480.png
Now, what would be a better proxy for putting a chill on the entire stock market than Apple stock?
If you had to pick one name right now that could cool sentiment in the market, across dividend payers, index ETFs, technology ETFs, and blue chips, wouldn’t it be Apple?
As I noted in my September article, which raised concerns about the Vision Pro being an innovation flop and essentially the anti-iPhone for Apple going forward, I noted that the stock was robustly valued, along with pretty much anything else that trades publicly in the United States right now.
This significant multiple expansion means the market expects significant growth.
This means that eventually, growth is going to have to come from new segments of the business.
And, it’s common sense that finding aggressive growth in new segments is going to be a difficult task with antitrust regulators breathing down your neck and pushing for a breakup of the business.
How can you position yourself for new segment growth and innovation when you don’t even know what the company will look like post-anti-trust settlement?
This uncertainty, combined with the fact that every single fucking thing not nailed down to the floor is overvalued right now, and the fact that euphoria is everywhere in markets while rates are at 5 1/2% and liquidity is drying up before our eyes, means that a stall in Apple could wind up becoming a stall for the broader market.
And it is going to be difficult to conjure up animal spirits when 1/7th of the magnificent 7 is bedridden with fleas.
The way the market is priced now, everything needs to be excellent or beyond excellent. All growth targets need to be hit, and companies need to exceed expectations. On top of that, liquidity needs to continue to mysteriously fall from the sky as the inevitable drying up of liquidity continues with rates at multi-decade highs.
Apple stalling out and essentially trading like the Japanese stock market over the next couple of years, due to this antitrust suit, could wind up being one of numerous wet blankets that finally smother the animal spirits the market somehow continues to pull out of thin air. And so, aside from basically every fundamental overvaluation argument you could make, I continue to watch Apple as a potential black swan indicator for the sentiment of the broader market going forward.
https://substackcdn.com/image/fetch/...88_642x394.png
https://substackcdn.com/image/fetch/...9b35_66x52.png
QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. I didn’t double-check any numbers or figures in this piece and am generally lazy with my research. Contributor posts and aggregated posts have not been fact-checked and are the opinions of their authors. Contributor posts and curated content are posted either with the author’s permission or under a Creative Commons license. This is not a recommendation or solicitation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. Sometimes I just lose money by misplacing it. I’m generally irresponsible. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. Do your research elsewhere. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided on this page.
These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it numerous times because it’s that important that you know.
Caution: Black Swan Crossing
It is going to be difficult to conjure up animal spirits when 1/7th of the magnificent 7 is bedridden with fleas.
https://substackcdn.com/image/fetch/...8ecd_63x61.png
QUOTH THE RAVEN
MAR 22, 2024
11
It’s an interesting juxtaposition when a black swan that you expected crosses your path but looks a bit different than you had previously suspected it would.
This was exactly the case yesterday when the Department of Justice brought its “landmark” antitrust lawsuit against Apple. At first, I wrote it off as just yet another antitrust case that would eventually be settled and become ancient history. After all, antitrust headlines hit the wire what seems like every single day. As a market observer, it is pretty routine, and I don’t pay much attention to them. Here’s yesterday’s story from CNBC:
The Department of Justice sued Apple on Thursday, saying its iPhone ecosystem is a monopoly that drove its “astronomical valuation” at the expense of consumers, developers, and rival phone makers.
The government has not ruled out breaking up one of the largest companies in the world, with a Justice Department official saying on a briefing call that structural relief was on the table if the U.S. were to win.
The lawsuit claims Apple’s anti-competitive practices extend beyond the iPhone and Apple Watch businesses, citing Apple’s advertising, browser, FaceTime, and news offerings.
“Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly,” according to the suit, filed by the DOJ and 16 attorneys general in New Jersey federal court.
Forgive me for asking, but isn’t ‘winning’ at the expense of rival product makers what the business world is all about?
This is a sprawling suit that didn’t raise any issues I found alarming. But maybe this is just because I am a happy iPhone user and former Apple employee who generally likes their products. I know that I certainly never felt as though I was using Apple products because they had some type of monopoly; I always just used them because I thought they were better than whatever else was out there.
But I’m not here to argue the merits of the case or play judge and jury. That will play out in court and in a long legal battle that will likely end in some type of settlement several years from now after both sides jostle back and forth and make their respective arguments.
I am, however, really interested in this case due to the chilling effect it could have on Apple as an investment. It was revealed yesterday that, as part of the potential outcomes for the case, Apple could be forced to subdivide its businesses or split off portions of its business. This reminded me a lot of the famed antitrust suit lodged against Microsoft back in 2001. I went back to read about that suit, which ultimately saw its decree take 10 years to pass and noticed that Microsoft stock hardly moved in the decade from the time the suit was brought until the time the decree expired. While Microsoft was busy resolving the suit, Apple and Google took flight as competitors:
The case marks one of the most important turning points in Microsoft’s history, up there with its first agreement to build an operating system for IBM and the introduction of the first version of Windows that featured graphic icons.
While the technology landscape has left the browser wars at the heart of the dispute far behind, and Microsoft continues to make billions from Windows and Office, the case left deep scars.
When the settlement of the landmark antitrust lawsuit against the company was proposed on Nov. 2, 2001, the stock traded at $27.63 a share. On Wednesday the stock closed at $25.36 per share.
Meanwhile, competitors like Apple have soared and new rivals like Google have taken flight. — Seattle Times, May 11, 2011
Granted, it was a time that encompassed the post-2000 bubble crash and the 2008 housing crisis. But it started to make me think more about the case I had previously made about Apple potentially being a black swan back in September of last year:
A Second Black Swan For Markets Emerges
QUOTH THE RAVEN
·
SEPTEMBER 11, 2023
Read full story
As I noted on this blog, Apple is as close to being the quintessential American stock as you can get. It’s a component in almost any ETF you can think of and is held so widely that even entities like the Swiss National Bank hold it on their balance sheet. It is a dividend payer, it is replete with cash, it makes products that almost everybody owns, and has simply become the king of technology and the king of smartphones.
Again, this is a position I believe it has earned for itself by creating a superior product. I worked for Apple during the first iPhone launch, and I remember using one for the first time and having my hair blown back. I thought to myself, “This is unlike anything the world has ever seen.”
And so, because the product was so exceptionally innovative, Apple has earned its place at the top as the king of the mountain. Following suit, Apple stock has also earned its place at the top of the heap.
https://substackcdn.com/image/fetch/...17_728x480.png
Now, what would be a better proxy for putting a chill on the entire stock market than Apple stock?
If you had to pick one name right now that could cool sentiment in the market, across dividend payers, index ETFs, technology ETFs, and blue chips, wouldn’t it be Apple?
As I noted in my September article, which raised concerns about the Vision Pro being an innovation flop and essentially the anti-iPhone for Apple going forward, I noted that the stock was robustly valued, along with pretty much anything else that trades publicly in the United States right now.
This significant multiple expansion means the market expects significant growth.
This means that eventually, growth is going to have to come from new segments of the business.
And, it’s common sense that finding aggressive growth in new segments is going to be a difficult task with antitrust regulators breathing down your neck and pushing for a breakup of the business.
How can you position yourself for new segment growth and innovation when you don’t even know what the company will look like post-anti-trust settlement?
This uncertainty, combined with the fact that every single fucking thing not nailed down to the floor is overvalued right now, and the fact that euphoria is everywhere in markets while rates are at 5 1/2% and liquidity is drying up before our eyes, means that a stall in Apple could wind up becoming a stall for the broader market.
And it is going to be difficult to conjure up animal spirits when 1/7th of the magnificent 7 is bedridden with fleas.
The way the market is priced now, everything needs to be excellent or beyond excellent. All growth targets need to be hit, and companies need to exceed expectations. On top of that, liquidity needs to continue to mysteriously fall from the sky as the inevitable drying up of liquidity continues with rates at multi-decade highs.
Apple stalling out and essentially trading like the Japanese stock market over the next couple of years, due to this antitrust suit, could wind up being one of numerous wet blankets that finally smother the animal spirits the market somehow continues to pull out of thin air. And so, aside from basically every fundamental overvaluation argument you could make, I continue to watch Apple as a potential black swan indicator for the sentiment of the broader market going forward.
https://substackcdn.com/image/fetch/...88_642x394.png
https://substackcdn.com/image/fetch/...9b35_66x52.png
QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. I didn’t double-check any numbers or figures in this piece and am generally lazy with my research. Contributor posts and aggregated posts have not been fact-checked and are the opinions of their authors. Contributor posts and curated content are posted either with the author’s permission or under a Creative Commons license. This is not a recommendation or solicitation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. Sometimes I just lose money by misplacing it. I’m generally irresponsible. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. Do your research elsewhere. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided on this page.
These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it numerous times because it’s that important that you know.
- Post #12,567
- Quote
- Mar 22, 2024 8:53am Mar 22, 2024 8:53am
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
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- Post #12,568
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- Edited 2:07pm Mar 22, 2024 9:27am | Edited 2:07pm
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
Universal Capitulation and No Margin of Safety - Hussman Funds
Universal Capitulation and No Margin of Safety
https://www.hussmanfunds.com/wp-cont...utton60x60.jpg
https://www.hussmanfunds.com/wp-cont..._thumbnail.jpg
John P. Hussman, Ph.D.
President, Hussman Investment Trust
March 2024
The 1929 boom was, in fact, quite a narrow and selective one. It was a boom of the handful of stocks that figured in the daily calculation of the Dow Jones and New York Times indices, and that was why those well-publicized indexes were at record highs. It was also a boom of the most actively traded stocks bearing the names of the most celebrated companies, the stocks mentioned daily by the newspapers and millions of times by the board room habitués – and that was why it was constantly talked about. But it was emphatically not a boom of secondary stocks in which perhaps as many investors were interested.
– John Brooks, Once in Golconda, 1969
The Nifty Fifty appeared to rise from the ocean; it was as though all of the U.S. but Nebraska had sunk into the sea. The two-tier market consisted of one tier and a lot of rubble down below. What held the Nifty Fifty up? The same thing that held up tulip bulb prices long ago in Holland – popular delusions and the madness of crowds. The delusion was that these companies were so good that it didn’t matter what you paid for them; their inexorable growth would bail you out.
– Forbes Magazine, 1977, The Nifty Fifty Revisited
The market is in a two-tier frenzy between the ‘new economy’ stocks and the ‘old economy’ stocks. Anyone who has studied the concept-stock mania of 1968-69, or the ‘Nifty Fifty’ mania of 1972 has to be getting chills here. We’ve seen two-tiered markets before: most prominently in 1929, 1968-69, and 1972. The inconvenient fact is that valuation ultimately matters. That has led to the rather peculiar risk projections that have appeared in this letter in recent months. Trend uniformity helps to postpone that reality, but in the end, there it is. Given current conditions, it is increasingly likely that valuations will begin to matter with a vengeance.
– John P. Hussman, Ph.D., March 7, 2000
Based on the valuation measures we find best-correlated with actual subsequent S&P 500 total returns across a century of market cycles, the stock market presently stands at valuation extremes matched only twice in U.S. financial history: the week ended December 31, 2021 (the 2022 peak occurred the next trading day) and the bubble peak in the week ended August 26, 1929. While our investment discipline is to align our outlook with prevailing, observable market conditions, my impression is that investors are presently enjoying the double top of the most extreme speculative bubble in U.S. financial history.
Present valuation extremes might only be a long-term concern if our measures of market internals were not also divergent and unfavorable here. It seems popular to imagine that “this time is different” – that the economy has entered a new era of permanently high-profit margins and credit expansion; that a narrow, selective, two-tier frenzy among large capitalization glamour stocks is enough to carry the market ever higher. History is not friendly to these ideas, but no forecasts are required. Our outlook will change as observable conditions change.
This month’s comment offers an expansive and data-rich dive into profit margins and market composition. The objective is not to argue, convince, or urge investors to do anything. We share our research, and we ask nothing in return. Still, if there is one suggestion that might be useful to investors here, it is simply to allow the possibility that market conditions will change. Whether your outlook is bullish or bearish, the notion that the current situation is permanent is exactly what will make you suffer.
This is the longest period of practically uninterrupted rise in security prices in our history… The psychological illusion upon which it is based, though not essentially new, has been stronger and more widespread than has ever been the case in this country in the past. This illusion is summed up in the phrase ‘the new era.’ The phrase itself is not new. Every period of speculation rediscovers it… During every preceding period of stock speculation and subsequent collapse, business conditions have been discussed in the same unrealistic fashion as in recent years. There has been the same widespread idea that in some miraculous way, endlessly elaborated but never defined, the fundamental conditions and requirements of progress and prosperity have changed, that old economic principles have been abrogated… that business profits are destined to grow faster, and without limit, and that the expansion of credit can have no end.
– The Business Week, November 2, 1929
Current market conditions
I think we can all agree on two propositions.
First, if enough speculators believe that stock market gains are driven by a tap-dancing squirrel monkey named Bobo, and Bobo starts tap-dancing, well, the stock market is going up, at least in the short run. Neither truth nor logic have anything to do with it.
Second, because stocks are ultimately a claim on future cash flows that must be delivered over time, higher starting valuations still mean lower long-term returns, which is why no speculative episode in history has ever ended well.
Both of these propositions can be true at the same time.
When investors are inclined to speculate, they tend to be indiscriminate about it. When speculation becomes highly selective, it’s typically an indication of subtle or emerging risk aversion. For that reason, we gauge investor psychology toward speculation and risk aversion based on the uniformity and divergence of market action across thousands of individual stocks, industries, sectors, and security types, including debt securities of varying creditworthiness.
I introduced our main gauge of “market internals” to our discipline in 1998, during the most speculative portion of the tech bubble, with minor adaptations since. As I noted in 2021, for example, we adopted a slightly more “permissive” threshold in our gauge of market internals when interest rates are near zero and certain measures of risk aversion are well-behaved. Given that we use market internals to gauge speculative psychology, a more permissive threshold captures the idea that tossing deranged Fed policy into the mix boosts the implications of a given improvement in market internals.
The chart below presents the cumulative total return of the S&P 500 in periods where our main gauge of market internals has been favorable, accruing Treasury bill interest otherwise. The chart is historical, does not represent any investment portfolio, does not reflect valuations or other features of our investment approach, and is not an assurance of future outcomes.
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Investor psychology, gauged by the uniformity and divergence of market action, is an essential consideration – particularly over periods shorter than a complete market cycle. This brings us to the second proposition, which is that long-term returns move opposite to starting valuations. That’s because every security is a claim to some future expected stream of cash flows that will be delivered over time. The higher the price investors pay for those cash flows, the lower the investment return they will enjoy. But this is a long-term, not a short-term proposition.
Investors increasingly question and ultimately abandon valuations during speculative episodes, imagining that rich valuations should be followed by market losses. That’s not how valuations work. The only way valuations can reach extremes like 1929, 2000, 2022 and today is by advancing through lesser valuations extremes again and again. The oversized past returns and extreme valuations at a bubble peak can convince investors that the relationship between valuations and subsequent returns has been broken, when in fact, the oversized past returns are precisely the result of those extreme bubble valuations.
The chart below shows our most reliable valuation measure, the ratio of nonfinancial market capitalization to gross value-added, including estimated foreign revenues (see the chart text for calculation details). We’ve observed greater extremes only twice in U.S. financial history: the week ended December 31, 2021, and the week ended August 26, 1929.
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Presently, the central elements of our investment discipline – market internals, valuations, and overextended conditions – uniformly hold us to a defensive outlook. I realize that some are waiting on a favorable shift in internals with increasing impatience, on the idea that the shift might justify speculation. While the S&P 500 is only a few percent ahead of Treasury bills since its January 2022 peak, it has recovered more significantly from its lows, yet internals remain divergent. Never mind that valuations now match those observed at the two greatest extremes in history – 1929 and 2022. Nothing prevents valuations from exceeding those extremes, particularly in the short run. A defensive position can feel excruciating, and investors can experience enormous psychological pressure to “get in” on the rally to obtain a feeling of relief.
Our approach to that impatience has been to test hundreds of modifications that might “force” a favorable shift here, without degrading the reliability of internals over the recent cycle and across history. We haven’t found even one that would do so. That’s probably because it’s ill-advised to force a constructive position amid market extremes and divergent internals, but there’s no harm in re-examining the data. Likewise, even if we were to apply a more permissive threshold here, with rates still well above zero, it would not shift our gauge of internals from their unfavorable status at present.
The market can certainly advance during periods of unfavorable internals, particularly over the short run. Still, these periodic advances tend to lag T-bills on average, and the gains are often abruptly surrendered. Accepting market risk during periods of unfavorable market internals always comes with elevated risk, and that risk becomes steeper when extreme valuations and overextended market action are present, as they are today. Put simply, I trust the guidance we have from valuations and internals, and our defensiveness here is both uncomfortable and intentional.
If you can’t stand “missing out” on any market advance, and speculative exuberance tempts you to abandon your discipline, you might benefit from some passive investment exposure – not because we think it will do well, but to relieve your psychological discomfort. That’s a personal decision, and we need not be involved. For our part, our outlook will change as observable conditions change.
This is what produces bull market tops. No one rationally would want to buy at the top, and yet enough people do to produce a top. It is quite amazing how time horizons and money goals can change when there are stocks around that are going up 100 percent in six months.”
– Adam Smith (GJW Goodman), The Money Game, 1967
The scatter plot below shows the relationship between starting valuations and subsequent 12-year S&P 500 average annual total returns. I’ve broken the chart into two subsets, not because I believe the long-term relationship has changed, but to isolate the effect of repeated speculative episodes since 1998. As I detailed more fully in The Structural Drivers of Investment Returns (see the section titled “You may not like this part”), the apparent “shift” in the relationship between valuations and returns is a reflection of speculative bubbles that front-load returns, and then resolve with negative returns, as usual.
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It’s worth noting that even based on optimistic year-ahead earnings estimates, the ratio of the S&P 500 to forward operating earnings is at levels, based on data since the 1980s, associated with average subsequent 10-year S&P 500 total returns close to zero. Our valuation concerns are certainly not limited to the measures we find most reliable.
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That said, we do find P/E ratios to be fraught with risky and unobserved assumptions. As Jeremy Grantham reminded investors last week, “If margins and multiples are both at record levels at the same time, it is double counting and double jeopardy – for waiting somewhere in the future is another July 1982 or March 2009 with simultaneous record low multiples and badly depressed margins.”
The 3D scatterplot below illustrates this point. The current S&P 500 operating P/E, operating margin, and associated 10-year return estimate is shown in green.
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The chart below places current extremes in a historical perspective, and also illustrates how bubbles can “front load” returns. Specifically, the effect of a bubble is to temporarily raise the level of valuations at the end of a given holding period. As a result, returns during that holding period are driven well above the returns one would have estimated based on valuations at the beginning of the holding period. For example, measured from 1988, the subsequent 12-year total return of the S&P 500 was much higher than one would have projected based on valuations at the time. Why? Because the end of those 12 years happened to be the 2000 bubble peak. The same has been true in recent years. Why? Because valuations are again at levels observed only near previous bubble peaks.
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As I’ve noted regularly, there’s one element of our discipline that gave us enormous difficulty during the speculative bubble of recent years. It was not internals. It was not even valuations. Rather, in prior market cycles, there were generally reliable “limits” to speculation – once certain combinations of overvaluation, overextended price action, and over-bullish sentiment emerged, the market would quickly encounter an air pocket, panic, or even crash in fairly short order. Amid the yield-seeking speculation encouraged by zero-interest rate policies (and the need for investors, in the aggregate, to hold 18-36% of GDP in zero-interest liquidity created by the Fed), those “limits” proved unreliable, and bearish positions were detrimental.
In 2017, we adapted our discipline to avoid adopting or amplifying a bearish investment outlook, even amid speculative extremes, in periods when our measures of market internals were favorable. Still, avoiding a bearish outlook is not the same as adopting a constructive one. In 2021, we further adapted our discipline to encourage a constructive outlook – regardless of the level of valuation – in periods when our measures of market internals are favorable. Those adaptations come with sufficient safety nets and position limits to qualify as what Benjamin Graham might describe as “intelligent speculation.”
Presently, we observe neither favorable valuations, nor favorable market internals, while our syndromes of overextension remain consistent with the risk of an abrupt air-pocket, panic, or crash. Even with the adaptations we’ve made in this cycle, present observable conditions encourage a strongly defensive stance here. Nothing in our discipline relies on a forecast, a collapse, or even a retreat to historically normal valuations, but we do take prevailing conditions seriously.
Universal capitulation
The ‘new era’ commencing in 1927 involved at bottom the abandonment of the analytical approach; and while emphasis was still seemingly placed on facts and figures, these were manipulated by a sort of pseudo-analysis to support the delusions of the period. The ‘new-era’ doctrine – that ‘good’ stocks (or ‘blue chips’) were sound investments regardless of how high the price paid for them – was at the bottom only a means for rationalizing under the title of ‘investment’ the well-nigh universal capitulation to the gambling fever.
– Benjamin Graham & David L. Dodd, Security Analysis, 1934
As we’ve discussed, every security is a claim on some set of cash flows that will be delivered to investors over time. Yet at any given moment, the only two things that determine the price of a stock are a) the highest price the most eager buyer is willing to pay, and b) the lowest price that the most eager seller is willing to accept. If enough buyers are eager and enough sellers are hesitant, the price will advance. If enough sellers are eager and enough buyers are hesitant, the price will decline. It doesn’t matter why.
In recent years, investor psychology has easily dominated valuations and overextended conditions. As the Federal Reserve gradually created 36% of GDP in zero-interest liabilities, someone had to hold them at every moment in time. Every dollar a buyer put “into” the market came right back “out” in the hands of the seller. Every dollar of “cash on the sidelines” stays “on the sidelines” because there are no “sidelines” in the first place. Every single dollar of base money (currency and bank reserves) created by the Fed has to be held by someone, passing from one holder to the next, until the Fed shrinks its balance sheet. For now, at least those liabilities earn 5.4% interest, so they no longer provoke speculation as they did when rates were zero.
While we’ve increasingly prioritized the condition of market internals in our discipline, valuations still matter. It’s just that they matter for long-term returns and have less reliable effects on short-term outcomes. Particularly with the adaptations we implemented in 2017 and 2021, the main effect of valuations in our discipline is to guide the size of our market exposure and the structure of any safety nets. Yet regardless of the level of valuations, in the majority of periods when internals are favorable, we expect our investment outlook to be constructive as well (though neutral in unusually extreme conditions). Internals will not remain divergent forever, and there will be enough investment opportunities that do not require chasing valuations that match the 1929 and 2022 highs.
I’ve become increasingly hesitant to discuss valuations, growth rates, profit margins, mega-cap glamour stocks, and the like. In our investment discipline, we’ve done as much as we possibly can to minimize the impact of valuations and speculative “limits” on our outlook when market internals are favorable – while still respecting the very real potential for poor market returns and profound full-cycle losses when market internals are divergent. Discussing valuations seems to lead investors to misinterpret our discipline and to imagine that our investment outlook depends sensitively on the particular valuation measures we use. The reality is that our outlook depends most on the combination of market internals and the general range of market valuations.
Meanwhile, as Graham and Dodd observed about the advance leading to the 1929 market peak, investors seem to have abandoned an analytical approach, except to the extent that it reinforces the idea that “good” stocks are sound investments regardless of how high their prices may be. Any discussion of valuations, except one that’s favorable to the idea that no price is too high, is readily dismissed. Forget that these valuations match the most speculative extremes in history. Universal capitulation and fear of missing out produce conformity of opinion, like a perfect row of ducks.
Yet despite the universal capitulation to passive investing at any price, the former finance professor in me still finds an analytical approach both useful and interesting. So, with the request that readers please keep in mind that our investment discipline relies on none of it, let’s talk about profit margins and mega-cap
stocks.
No margin of safety
Several facts seem to be taken as common knowledge among investors. They include the belief that earnings are the proper fundamental to use when valuing stocks; that the increase in profit margins over recent decades is owed primarily to improvements in technology that provide a permanent basis for elevated profitability; and that surging profit margins among mega-cap stocks, particularly technology companies, have been a central driver of these trends.
All of these propositions are incorrect.
Consider valuations. A reliable valuation ratio is nothing more than shorthand for a proper discounted cash flow analysis. You are saying “The fundamental in the denominator is representative and proportional to decades and decades of expected future cash flows that will be delivered to me over time.”
What you need most is for the denominator to be representative and proportional to decades and decades of future expected cash flows. If you simply take the current earnings figure at face value, but that earnings figure is distorted by recession, temporary government subsidies, unusually elevated or depressed interest rates, or temporarily depressed labor costs (especially when inflation and tight labor conditions are pushing labor costs higher), you’re making a longshot bet that the temporarily extreme profit margin will be sustained forever.
That’s why we find, across a century of cycles in the U.S. financial markets, that valuation ratios based on revenues and gross-value added, not prevailing earnings, are best-correlated with actual subsequent S&P 500 total returns. When you use a price/earnings ratio, you are quietly making the assumption that whatever profit margin happens to prevail at that time will also be sustained permanently.
The chart below offers a sense of the profit margins that investors quietly assume to be the permanent basis for decades and decades of future cash flows.
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Profit margins (earnings as a percentage of revenue or gross value-added) scale a bit differently in the national income accounts than they do in S&P 500 company earnings reports because of the way that inventory valuation, capital consumption, and extraordinary charges are handled. Still, these profitability ratios move largely in tandem. That’s not a surprise given that the profits and revenues of S&P 500 components make up the bulk of the economy-wide figures. In the analysis that follows, we’ll use both measures, depending on whether we’re examining economy-wide drivers of profit margins, or profit margins among particular subsets of S&P 500 components.
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It’s tempting for analysts to claim that S&P 500 valuations – particularly high price-to-revenue ratios – are justified by high profit margins. Yet as we’ve seen, S&P 500 price/earnings ratios are sky-high as well. Nor do high profit margins explain away the valuations of the largest S&P 500 components. The chart below shows the median operating P/E of the largest 50 S&P 500 components in monthly data from 1984 to the present, along with the subsequent 7-year total return of a portfolio comprised of the largest 50 S&P 500 components. The blue dots show the same analysis using a “pseudo” P/E computed by dividing the median price/revenue ratio of the largest 50 S&P 500 components by their median profit margin. Either way, valuations as of March 2024 are at levels consistent with zero total returns over the coming 7-year period.
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The chart below shows the median price/revenue ratio of S&P 500, from the 10% of components with the highest multiples to the 10% with the lowest multiples. Thanks to our resident math guru, Russell Jackson, for an enormous amount of programming to compile the data in these charts. Except for the most richly-valued 10% of S&P 500 components, every group stands at multiples beyond the 2000 and 2007 peaks.
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The chart below offers a similar perspective, showing the price/revenue ratios of the largest 10%, smallest 10%, and median S&P 500 components, sorted by market capitalization.
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It seems to be an article of faith among investors that profit margins among the very largest capitalization S&P 500 companies have improved disproportionately in recent decades, but that’s just not true. The chart below shows the median profit margin of the largest S&P 500 components representing 20% and 40% of total index capitalization, as a ratio to the median profit margin of all S&P 500 components. There’s certainly variation over time, but there’s no decisive trend.
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Stated another way, S&P 500 profit margins have not been higher in recent years because mega-cap glamour technology companies have skewed those profit margins disproportionately higher. Rather, profit margins have advanced across the board, and as it turns out, for reasons that are ordinary, unglamorous, and most likely temporary.
The chart below shows the profit margins of U.S. nonfinancial companies in data since 1948. The top line shows corporate profit margins before deducting interest and taxes, and the bottom line shows profit margins after those deductions.
Notice something. Despite all the bluster about technological improvements driving durable increases in corporate profitability over time, the fact is that corporate profit margins before interest and taxes have hovered around the same level for 75 years.
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Should investors rely on permanently elevated profit margins? Well, tax reductions have helped to boost margins, but the largest impact of corporate tax cuts on profit margins occurred by the early-1980’s; depressed labor costs following the global financial crisis boosted profits for several years after, but labor costs mainly drove cyclical fluctuations in profit margins and been normalizing in recent years; massive government subsidies and household dissaving provided a temporary boost to corporate profit margins following the pandemic, but these are being phased out; and progressively falling interest costs – the strongest driver of progressively rising profit margins – have already reversed, but margins don’t yet reflect that because corporations locked in record low rates during 2020-2021.
Let’s go through these points one by one. First, the chart below shows U.S. nonfinancial profit margins versus the (inverted) ratio of unit labor costs to the GDP deflator. Here’s how this works. Imagine selling a widget. You get the price of the widget as revenue for that unit, and you pay for the labor used to produce that unit (the “unit labor cost”). From an economy-wide perspective, the ratio of the unit labor cost to the price is the share of revenue that you spent on labor to produce that unit. Of course, profit margins will move in the opposite direction.
Notice that profit margins since the pandemic have been clear outliers from the perspective of labor costs, as they were just before the global financial crisis. In both cases, corporate profits were driven by household spending more than household income. As I’ve noted before, it’s an accounting identity that when one economic sector runs a deficit (consumption and net investment over income), some other sector must run a surplus. Corporations also benefited directly from massive government subsidies (in this case, the government also expanded its spending well above its income).
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The next chart shows nonfinancial corporate taxes as a share of revenues. What’s striking here is that the largest impact of tax reductions on corporate profit margins had already occurred by the early 1980s. Despite various changes in statutory tax rates, the actual amount of taxes paid as a share of corporate revenues hasn’t changed in 40 years.
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[Geek’s Note: If one assumes that current corporate tax rates are permanent, one could reasonably adjust current and historical price/revenue ratios to reflect the lower level of taxes as a share of revenues since the early1980s. Doing so would reduce the adjusted price/revenue multiple by about 30% relative to pre-1980s levels, but still leave the adjusted multiple dramatically above historical norms, beyond the 2000 peak, leaves projected 10-12 S&P 500 total returns at negative levels, and producing only minimal improvement in the historical correlation between valuations and subsequent returns].
Now consider interest costs. The red line in the chart below (right scale) shows nonfinancial corporate debt as a fraction of corporate revenues. Notice that nonfinancial corporate debt has progressively increased in recent decades, to the point where debt at roughly the same level as annual revenues (so a 1% increase in the cost of debt now impacts profit margins by that same 1%, though slightly less for companies in the S&P 500).
Notice also that after peaking in 1990, interest costs as a share of corporate revenues have declined progressively, even though debt as a fraction of revenues has increased. It’s this progressive decline in interest costs that has driven much of the improvement in corporate profit margins in recent decades.
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The chart below shows nonfinancial corporate interest costs as a fraction of total debt and loan obligations. Not surprisingly, the cost of debt service closely tracks corporate bond yields over time. With one exception. As interest rates hit record lows during the pandemic, corporations launched a record bout of debt refinancing. As a result, the higher interest rates of the past two years have not yet hit corporate interest costs or profit margins. Corporations will face an increasing wall of maturing debt and leveraged loans between 2024 and 2028, but those are just beginning.
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The chart below shows the relationship between the Baa corporate yield and S&P 500 operating profit margins. Notice that the slope of this line was flatter in the blue data prior to 1981 and the red segment with interest rates above 10% (pre-1990) because the ratio of debt to revenue was much lower than it is today.
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As a side note, several very large capitalization companies in the S&P 500 presently have not only significant amounts of debt but also significant holdings of cash and cash equivalents. Having locked in lower rates on their debt, these companies have been particular beneficiaries of elevated short-term rates. For these companies, the current inversion of the yield curve is particularly helpful. As debt is gradually refinanced at higher rates, and short-term rates presumably move lower over time, much of this benefit is likely to dissipate.
The stock market presently stands at valuation extremes matched only twice in U.S. financial history: the week ended December 31, 2021, and the week ended August 26, 1929. Meanwhile, despite all the bluster about technological improvements driving durable increases in corporate profitability over time, the fact is that corporate profit margins before interest and taxes have hovered around the same level for 75 years. The largest impact of corporate tax cuts on profit margins occurred by the early-1980s. Progressively falling interest costs – the strongest driver of progressively rising profit margins – have already reversed, but margins don’t yet reflect that because corporations locked in record-low rates during 2020-2021.
Mega-cap stocks and the S&P 500
It has always perplexed me that every generation of investors seems to believe that the innovations occurring in their lifetime are the first and most important innovations in history. Imagine a world without automobiles, television, radio, aviation, pharmaceuticals, computing. All of these were new ideas and industries at earlier points in U.S. history. All of them sparked the imagination of investors. All of them provoked episodes of speculation. We can participate in them, and invest in companies involving them – indeed, some of our largest holdings at present are AI-related – but it is worth remembering that extreme speculation in “new economy” stocks typically ends badly if one becomes immune to valuations.
The chart below is from a study of the 1926-1933 period by Wuthisatian et al 2014, which includes an analysis of the rise and collapse of what they refer to as “innovative companies” of the time. At the time, these innovations included things we take very much for granted, such as cars, radio, and chemicals, but which were enormously profitable at the time because of their novelty and scarcity. As the authors note, “the criteria by which they were chosen are that all of them have introduced qualitatively radical innovations, using technologies that allowed for the production of new goods that led to the creation of completely new economic sectors. The criteria amount to complying with a technological ‘displacement’ (Minsky, 1982).”
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Notably, much of the loss from the speculative highs in these companies came before the Great Depression took hold. Other glamour-stock bubbles have had a similar pattern. An important risk to investors as a bubble burst is that previous high-fliers can look enormously attractive after they are down 20-30% from their highs. The apparent bargain can prove costly if, as often happens, the stock is headed for a 60-80% loss.
For example, in March 2000, I projected an 83% loss in tech stocks over the completion of that market cycle. The tech-heavy Nasdaq 100 lost more than 35% over the next two months, which made tech stocks look “cheap” compared with their recent highs. By October 2002, the index had lost another 73% of its value, for an overall loss, as it happened, of 83%. The point is that valuations matter, and the collapse of speculative valuations can be utterly punitive, particularly when market internals are unfavorable as was true during the 2000-2002 period.
The chart below shows the median price/revenue ratio of the largest 10 and 50 S&P 500 components, as of December 31 of each year. Suffice it to say that the multiples have become even more extreme in recent weeks.
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While investors often believe that mega-cap glamour stocks are somehow “above the law” and operate differently than the broad market, they put their pants on one leg at a time like every other stock. The chart below shows the 10 S&P 500 components with the largest market capitalizations each year since 1984, along with the subsequent 10-year capitalization-weighted total return for each cohort of stocks. Not surprisingly, rich valuations tend to produce poor subsequent returns.
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It should not be surprising that the growth rate of a company should slow as its size increases. If that were not the case, companies would quickly swallow the entire economy. Yet extrapolation is easy and becomes even easier when the promise of a new technology sparks the imagination of investors. For that reason, it’s worth noting that companies that join the 10 largest capitalization members of the S&P 500 tend to deliver progressively slower growth in the years that follow. Not in every instance, but the regularity is very clear.
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The chart below shows what this looks like for several high-growth cohorts in recent decades.
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Of course, growth doesn’t just slow once a company joins the largest 10 S&P 500 components. In most cases, these large stocks grew into their notoriety from much smaller levels, and growth rates had already been on a downward trajectory for years.
Consider the “Magnificent Seven.” In the following chart, the horizontal axis is a measure of “market saturation.” Specifically, it gauges the ratio of 12-month trailing revenues to 2023 revenues. The chart illustrates the progressive slowing of 2-year growth rates as these companies have approached maturity. That’s not to say that these companies cannot grow further. Rather, the point is that growth rates are best viewed as trajectories rather than as fixed numbers.
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One of the frequently parroted phrases on CNBC that makes me long for a better educational system is “These stocks have been getting cheaper as earnings have grown.” This sort of comment reflects a distressingly naïve understanding of how valuation multiples work.
Suppose for example that a company earned $1 last year and is expected to earn $2 in the coming year, at which point it will stop growing and pay out a $2 annual dividend forever. If investors expect a 10% long-term return from the stock, they’ll pay a price of $20 today, and the price will maintain that level forever. That gives investors a $2 dividend starting next year, a $20 price, and a 10% total return.
In the coming year, earnings will double from $1 to $2, and the P/E ratio will drop from 20 to 10. The stock will have gotten “cheaper” as earnings have grown. That is as it should be. The reason multiples are high for rapidly growing companies is that high valuation multiples already reflect expected growth. If the stock is correctly valued, the multiple should contract anytime fundamentals grow faster than the long-term return (capital gain) expected by investors.
Just like growth rates, profit margins are best viewed as trajectories, not as fixed numbers. Novel technologies and innovations typically enjoy the pleasant combination of very high demand and very high scarcity. New orders and order backlogs are high, and competition may still be a few years away. In that environment, profit margins may be very wide. The danger for investors is in assuming that the profit margins and growth rates are permanent, and pricing stocks on that basis. That’s how you get 80-90% losses in glamour stocks.
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A useful way to understand growth stocks, particularly large-capitalization glamour stocks, is to remember that economic growth is driven not just by innovation, not just by profits, but ultimately by the destruction of profits.
As I discussed in Alice’s Adventures in Equilibrium, when we examine economic history, it’s clear that the long-term expansion in living standards isn’t simply the result of a continuous increase in the production of some single “representative good.” Instead, growth emerges by the progressive introduction of new inventions, technologies, and products that satisfy previously unmet needs.
In his work on economic development, Joseph Schumpeter described the critical role of entrepreneurs in advancing economic growth. When Schumpeter wrote about “creative destruction,” he was referring to temporary profit opportunities that provide incentives to invent, innovate, and satisfy unmet needs. But he also observed that those profit opportunities would encourage a “swarm-like” activity of other entrepreneurs. As production expands, the unusually high profits that encouraged the new production and competition gradually self-destruct. Competition and gradually increasing production drive economic growth, but at the same time, it reduces scarcity and erodes excessive profits.
As the rise and decay of industrial fortunes is the essential fact about the social structure of capitalist society, both the emergence of what is, in any single instance, an essentially temporary gain, and the elimination of it through the working of the competitive mechanism, obviously are more than ‘frictional’ phenomena, as is the process of underselling by which industrial progress comes about in a capitalist society and by which its achievements result in higher incomes all around.
– Joseph Schumpeter, The Instability of Capitalism (1928)
In the short run, there’s no question that strong demand for new, scarce products, such as AI chips, can enable a company to enjoy extremely high-profit margins. Still, it’s dangerous for investors to treat these high-profit margins as permanent, and to value stocks as if those profit margins will be sustained indefinitely.
Put simply, the combination of a high growth rate and a high-profit margin has never proved to be permanent. The current crop of “glamour stocks” increasingly relies on both here.
No forecasts are required
For the sake of clarity, I’ll emphasize again that while we certainly prefer some valuation measures to others, our overall market view is not highly sensitive to our choice of valuation metrics. Instead, our investment discipline is to align our outlook with observable market conditions, primarily the uniformity or divergence of market internals, and the general range of market valuations.
Notably, our most reliable valuation gauge matches extremes seen only at the 1929 and 2022 market peaks. I believe that these extremes should be of great concern to long-term investors, but that doesn’t prevent valuations from breaching those extremes in the short run. We do believe that 10-12-year S&P 500 total returns are likely to be negative, and we do estimate that the S&P 500 is likely to lose something on the order of 50-70% from current highs over the completion of this market cycle. In short, we do have long-term views, it’s just that nothing in our investment discipline relies on those outcomes.
Again, if you can’t stand “missing out” on any market advance, and speculative exuberance tempts you to abandon your discipline, you might benefit from some passive investment exposure – not because we think it will do well, but to relieve your psychological discomfort. That’s a personal decision, and we need not be involved. For our part, our outlook will change as observable conditions change.
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The foregoing comments represent the general investment analysis and economic views of the Advisor, and are provided solely for the purpose of information, instruction and discourse.
Prospectuses for the Hussman Strategic Growth Fund, the Hussman Strategic Total Return Fund, and the Hussman Strategic Allocation Fund, as well as Fund reports and other information, are available by clicking the “The Funds” menu button from any page of this website.
Estimates of prospective return and risk for equities, bonds, and other financial markets are forward-looking statements based on the analysis and reasonable beliefs of Hussman Strategic Advisors. They are not a guarantee of future performance and are not indicative of the prospective returns of any of the Hussman Funds. Actual returns may differ substantially from the estimates provided. Estimates of prospective long-term returns for the S&P 500 reflect our standard valuation methodology, focusing on the relationship between current market prices and earnings, dividends, and other fundamentals, adjusted for variability over the economic cycle. Further details relating to Market Cap/GVA (the ratio of nonfinancial market capitalization to gross-value added, including estimated foreign revenues) and our Margin-Adjusted P/E (MAPE) can be found in the Market Comment Archive under the Knowledge Center tab of this website. Market Cap/GVA: Hussmann 05/18/15. MAPE: Hussman 05/05/14, Hussman 09/04/17.
Universal Capitulation and No Margin of Safety
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John P. Hussman, Ph.D.
President, Hussman Investment Trust
March 2024
The 1929 boom was, in fact, quite a narrow and selective one. It was a boom of the handful of stocks that figured in the daily calculation of the Dow Jones and New York Times indices, and that was why those well-publicized indexes were at record highs. It was also a boom of the most actively traded stocks bearing the names of the most celebrated companies, the stocks mentioned daily by the newspapers and millions of times by the board room habitués – and that was why it was constantly talked about. But it was emphatically not a boom of secondary stocks in which perhaps as many investors were interested.
– John Brooks, Once in Golconda, 1969
The Nifty Fifty appeared to rise from the ocean; it was as though all of the U.S. but Nebraska had sunk into the sea. The two-tier market consisted of one tier and a lot of rubble down below. What held the Nifty Fifty up? The same thing that held up tulip bulb prices long ago in Holland – popular delusions and the madness of crowds. The delusion was that these companies were so good that it didn’t matter what you paid for them; their inexorable growth would bail you out.
– Forbes Magazine, 1977, The Nifty Fifty Revisited
The market is in a two-tier frenzy between the ‘new economy’ stocks and the ‘old economy’ stocks. Anyone who has studied the concept-stock mania of 1968-69, or the ‘Nifty Fifty’ mania of 1972 has to be getting chills here. We’ve seen two-tiered markets before: most prominently in 1929, 1968-69, and 1972. The inconvenient fact is that valuation ultimately matters. That has led to the rather peculiar risk projections that have appeared in this letter in recent months. Trend uniformity helps to postpone that reality, but in the end, there it is. Given current conditions, it is increasingly likely that valuations will begin to matter with a vengeance.
– John P. Hussman, Ph.D., March 7, 2000
Based on the valuation measures we find best-correlated with actual subsequent S&P 500 total returns across a century of market cycles, the stock market presently stands at valuation extremes matched only twice in U.S. financial history: the week ended December 31, 2021 (the 2022 peak occurred the next trading day) and the bubble peak in the week ended August 26, 1929. While our investment discipline is to align our outlook with prevailing, observable market conditions, my impression is that investors are presently enjoying the double top of the most extreme speculative bubble in U.S. financial history.
Present valuation extremes might only be a long-term concern if our measures of market internals were not also divergent and unfavorable here. It seems popular to imagine that “this time is different” – that the economy has entered a new era of permanently high-profit margins and credit expansion; that a narrow, selective, two-tier frenzy among large capitalization glamour stocks is enough to carry the market ever higher. History is not friendly to these ideas, but no forecasts are required. Our outlook will change as observable conditions change.
This month’s comment offers an expansive and data-rich dive into profit margins and market composition. The objective is not to argue, convince, or urge investors to do anything. We share our research, and we ask nothing in return. Still, if there is one suggestion that might be useful to investors here, it is simply to allow the possibility that market conditions will change. Whether your outlook is bullish or bearish, the notion that the current situation is permanent is exactly what will make you suffer.
This is the longest period of practically uninterrupted rise in security prices in our history… The psychological illusion upon which it is based, though not essentially new, has been stronger and more widespread than has ever been the case in this country in the past. This illusion is summed up in the phrase ‘the new era.’ The phrase itself is not new. Every period of speculation rediscovers it… During every preceding period of stock speculation and subsequent collapse, business conditions have been discussed in the same unrealistic fashion as in recent years. There has been the same widespread idea that in some miraculous way, endlessly elaborated but never defined, the fundamental conditions and requirements of progress and prosperity have changed, that old economic principles have been abrogated… that business profits are destined to grow faster, and without limit, and that the expansion of credit can have no end.
– The Business Week, November 2, 1929
Current market conditions
I think we can all agree on two propositions.
First, if enough speculators believe that stock market gains are driven by a tap-dancing squirrel monkey named Bobo, and Bobo starts tap-dancing, well, the stock market is going up, at least in the short run. Neither truth nor logic have anything to do with it.
Second, because stocks are ultimately a claim on future cash flows that must be delivered over time, higher starting valuations still mean lower long-term returns, which is why no speculative episode in history has ever ended well.
Both of these propositions can be true at the same time.
When investors are inclined to speculate, they tend to be indiscriminate about it. When speculation becomes highly selective, it’s typically an indication of subtle or emerging risk aversion. For that reason, we gauge investor psychology toward speculation and risk aversion based on the uniformity and divergence of market action across thousands of individual stocks, industries, sectors, and security types, including debt securities of varying creditworthiness.
I introduced our main gauge of “market internals” to our discipline in 1998, during the most speculative portion of the tech bubble, with minor adaptations since. As I noted in 2021, for example, we adopted a slightly more “permissive” threshold in our gauge of market internals when interest rates are near zero and certain measures of risk aversion are well-behaved. Given that we use market internals to gauge speculative psychology, a more permissive threshold captures the idea that tossing deranged Fed policy into the mix boosts the implications of a given improvement in market internals.
The chart below presents the cumulative total return of the S&P 500 in periods where our main gauge of market internals has been favorable, accruing Treasury bill interest otherwise. The chart is historical, does not represent any investment portfolio, does not reflect valuations or other features of our investment approach, and is not an assurance of future outcomes.
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Investor psychology, gauged by the uniformity and divergence of market action, is an essential consideration – particularly over periods shorter than a complete market cycle. This brings us to the second proposition, which is that long-term returns move opposite to starting valuations. That’s because every security is a claim to some future expected stream of cash flows that will be delivered over time. The higher the price investors pay for those cash flows, the lower the investment return they will enjoy. But this is a long-term, not a short-term proposition.
Investors increasingly question and ultimately abandon valuations during speculative episodes, imagining that rich valuations should be followed by market losses. That’s not how valuations work. The only way valuations can reach extremes like 1929, 2000, 2022 and today is by advancing through lesser valuations extremes again and again. The oversized past returns and extreme valuations at a bubble peak can convince investors that the relationship between valuations and subsequent returns has been broken, when in fact, the oversized past returns are precisely the result of those extreme bubble valuations.
The chart below shows our most reliable valuation measure, the ratio of nonfinancial market capitalization to gross value-added, including estimated foreign revenues (see the chart text for calculation details). We’ve observed greater extremes only twice in U.S. financial history: the week ended December 31, 2021, and the week ended August 26, 1929.
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Presently, the central elements of our investment discipline – market internals, valuations, and overextended conditions – uniformly hold us to a defensive outlook. I realize that some are waiting on a favorable shift in internals with increasing impatience, on the idea that the shift might justify speculation. While the S&P 500 is only a few percent ahead of Treasury bills since its January 2022 peak, it has recovered more significantly from its lows, yet internals remain divergent. Never mind that valuations now match those observed at the two greatest extremes in history – 1929 and 2022. Nothing prevents valuations from exceeding those extremes, particularly in the short run. A defensive position can feel excruciating, and investors can experience enormous psychological pressure to “get in” on the rally to obtain a feeling of relief.
Our approach to that impatience has been to test hundreds of modifications that might “force” a favorable shift here, without degrading the reliability of internals over the recent cycle and across history. We haven’t found even one that would do so. That’s probably because it’s ill-advised to force a constructive position amid market extremes and divergent internals, but there’s no harm in re-examining the data. Likewise, even if we were to apply a more permissive threshold here, with rates still well above zero, it would not shift our gauge of internals from their unfavorable status at present.
The market can certainly advance during periods of unfavorable internals, particularly over the short run. Still, these periodic advances tend to lag T-bills on average, and the gains are often abruptly surrendered. Accepting market risk during periods of unfavorable market internals always comes with elevated risk, and that risk becomes steeper when extreme valuations and overextended market action are present, as they are today. Put simply, I trust the guidance we have from valuations and internals, and our defensiveness here is both uncomfortable and intentional.
If you can’t stand “missing out” on any market advance, and speculative exuberance tempts you to abandon your discipline, you might benefit from some passive investment exposure – not because we think it will do well, but to relieve your psychological discomfort. That’s a personal decision, and we need not be involved. For our part, our outlook will change as observable conditions change.
This is what produces bull market tops. No one rationally would want to buy at the top, and yet enough people do to produce a top. It is quite amazing how time horizons and money goals can change when there are stocks around that are going up 100 percent in six months.”
– Adam Smith (GJW Goodman), The Money Game, 1967
The scatter plot below shows the relationship between starting valuations and subsequent 12-year S&P 500 average annual total returns. I’ve broken the chart into two subsets, not because I believe the long-term relationship has changed, but to isolate the effect of repeated speculative episodes since 1998. As I detailed more fully in The Structural Drivers of Investment Returns (see the section titled “You may not like this part”), the apparent “shift” in the relationship between valuations and returns is a reflection of speculative bubbles that front-load returns, and then resolve with negative returns, as usual.
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It’s worth noting that even based on optimistic year-ahead earnings estimates, the ratio of the S&P 500 to forward operating earnings is at levels, based on data since the 1980s, associated with average subsequent 10-year S&P 500 total returns close to zero. Our valuation concerns are certainly not limited to the measures we find most reliable.
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That said, we do find P/E ratios to be fraught with risky and unobserved assumptions. As Jeremy Grantham reminded investors last week, “If margins and multiples are both at record levels at the same time, it is double counting and double jeopardy – for waiting somewhere in the future is another July 1982 or March 2009 with simultaneous record low multiples and badly depressed margins.”
The 3D scatterplot below illustrates this point. The current S&P 500 operating P/E, operating margin, and associated 10-year return estimate is shown in green.
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The chart below places current extremes in a historical perspective, and also illustrates how bubbles can “front load” returns. Specifically, the effect of a bubble is to temporarily raise the level of valuations at the end of a given holding period. As a result, returns during that holding period are driven well above the returns one would have estimated based on valuations at the beginning of the holding period. For example, measured from 1988, the subsequent 12-year total return of the S&P 500 was much higher than one would have projected based on valuations at the time. Why? Because the end of those 12 years happened to be the 2000 bubble peak. The same has been true in recent years. Why? Because valuations are again at levels observed only near previous bubble peaks.
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As I’ve noted regularly, there’s one element of our discipline that gave us enormous difficulty during the speculative bubble of recent years. It was not internals. It was not even valuations. Rather, in prior market cycles, there were generally reliable “limits” to speculation – once certain combinations of overvaluation, overextended price action, and over-bullish sentiment emerged, the market would quickly encounter an air pocket, panic, or even crash in fairly short order. Amid the yield-seeking speculation encouraged by zero-interest rate policies (and the need for investors, in the aggregate, to hold 18-36% of GDP in zero-interest liquidity created by the Fed), those “limits” proved unreliable, and bearish positions were detrimental.
In 2017, we adapted our discipline to avoid adopting or amplifying a bearish investment outlook, even amid speculative extremes, in periods when our measures of market internals were favorable. Still, avoiding a bearish outlook is not the same as adopting a constructive one. In 2021, we further adapted our discipline to encourage a constructive outlook – regardless of the level of valuation – in periods when our measures of market internals are favorable. Those adaptations come with sufficient safety nets and position limits to qualify as what Benjamin Graham might describe as “intelligent speculation.”
Presently, we observe neither favorable valuations, nor favorable market internals, while our syndromes of overextension remain consistent with the risk of an abrupt air-pocket, panic, or crash. Even with the adaptations we’ve made in this cycle, present observable conditions encourage a strongly defensive stance here. Nothing in our discipline relies on a forecast, a collapse, or even a retreat to historically normal valuations, but we do take prevailing conditions seriously.
Universal capitulation
The ‘new era’ commencing in 1927 involved at bottom the abandonment of the analytical approach; and while emphasis was still seemingly placed on facts and figures, these were manipulated by a sort of pseudo-analysis to support the delusions of the period. The ‘new-era’ doctrine – that ‘good’ stocks (or ‘blue chips’) were sound investments regardless of how high the price paid for them – was at the bottom only a means for rationalizing under the title of ‘investment’ the well-nigh universal capitulation to the gambling fever.
– Benjamin Graham & David L. Dodd, Security Analysis, 1934
As we’ve discussed, every security is a claim on some set of cash flows that will be delivered to investors over time. Yet at any given moment, the only two things that determine the price of a stock are a) the highest price the most eager buyer is willing to pay, and b) the lowest price that the most eager seller is willing to accept. If enough buyers are eager and enough sellers are hesitant, the price will advance. If enough sellers are eager and enough buyers are hesitant, the price will decline. It doesn’t matter why.
In recent years, investor psychology has easily dominated valuations and overextended conditions. As the Federal Reserve gradually created 36% of GDP in zero-interest liabilities, someone had to hold them at every moment in time. Every dollar a buyer put “into” the market came right back “out” in the hands of the seller. Every dollar of “cash on the sidelines” stays “on the sidelines” because there are no “sidelines” in the first place. Every single dollar of base money (currency and bank reserves) created by the Fed has to be held by someone, passing from one holder to the next, until the Fed shrinks its balance sheet. For now, at least those liabilities earn 5.4% interest, so they no longer provoke speculation as they did when rates were zero.
While we’ve increasingly prioritized the condition of market internals in our discipline, valuations still matter. It’s just that they matter for long-term returns and have less reliable effects on short-term outcomes. Particularly with the adaptations we implemented in 2017 and 2021, the main effect of valuations in our discipline is to guide the size of our market exposure and the structure of any safety nets. Yet regardless of the level of valuations, in the majority of periods when internals are favorable, we expect our investment outlook to be constructive as well (though neutral in unusually extreme conditions). Internals will not remain divergent forever, and there will be enough investment opportunities that do not require chasing valuations that match the 1929 and 2022 highs.
I’ve become increasingly hesitant to discuss valuations, growth rates, profit margins, mega-cap glamour stocks, and the like. In our investment discipline, we’ve done as much as we possibly can to minimize the impact of valuations and speculative “limits” on our outlook when market internals are favorable – while still respecting the very real potential for poor market returns and profound full-cycle losses when market internals are divergent. Discussing valuations seems to lead investors to misinterpret our discipline and to imagine that our investment outlook depends sensitively on the particular valuation measures we use. The reality is that our outlook depends most on the combination of market internals and the general range of market valuations.
Meanwhile, as Graham and Dodd observed about the advance leading to the 1929 market peak, investors seem to have abandoned an analytical approach, except to the extent that it reinforces the idea that “good” stocks are sound investments regardless of how high their prices may be. Any discussion of valuations, except one that’s favorable to the idea that no price is too high, is readily dismissed. Forget that these valuations match the most speculative extremes in history. Universal capitulation and fear of missing out produce conformity of opinion, like a perfect row of ducks.
Yet despite the universal capitulation to passive investing at any price, the former finance professor in me still finds an analytical approach both useful and interesting. So, with the request that readers please keep in mind that our investment discipline relies on none of it, let’s talk about profit margins and mega-cap
stocks.
No margin of safety
Several facts seem to be taken as common knowledge among investors. They include the belief that earnings are the proper fundamental to use when valuing stocks; that the increase in profit margins over recent decades is owed primarily to improvements in technology that provide a permanent basis for elevated profitability; and that surging profit margins among mega-cap stocks, particularly technology companies, have been a central driver of these trends.
All of these propositions are incorrect.
Consider valuations. A reliable valuation ratio is nothing more than shorthand for a proper discounted cash flow analysis. You are saying “The fundamental in the denominator is representative and proportional to decades and decades of expected future cash flows that will be delivered to me over time.”
What you need most is for the denominator to be representative and proportional to decades and decades of future expected cash flows. If you simply take the current earnings figure at face value, but that earnings figure is distorted by recession, temporary government subsidies, unusually elevated or depressed interest rates, or temporarily depressed labor costs (especially when inflation and tight labor conditions are pushing labor costs higher), you’re making a longshot bet that the temporarily extreme profit margin will be sustained forever.
That’s why we find, across a century of cycles in the U.S. financial markets, that valuation ratios based on revenues and gross-value added, not prevailing earnings, are best-correlated with actual subsequent S&P 500 total returns. When you use a price/earnings ratio, you are quietly making the assumption that whatever profit margin happens to prevail at that time will also be sustained permanently.
The chart below offers a sense of the profit margins that investors quietly assume to be the permanent basis for decades and decades of future cash flows.
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Profit margins (earnings as a percentage of revenue or gross value-added) scale a bit differently in the national income accounts than they do in S&P 500 company earnings reports because of the way that inventory valuation, capital consumption, and extraordinary charges are handled. Still, these profitability ratios move largely in tandem. That’s not a surprise given that the profits and revenues of S&P 500 components make up the bulk of the economy-wide figures. In the analysis that follows, we’ll use both measures, depending on whether we’re examining economy-wide drivers of profit margins, or profit margins among particular subsets of S&P 500 components.
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It’s tempting for analysts to claim that S&P 500 valuations – particularly high price-to-revenue ratios – are justified by high profit margins. Yet as we’ve seen, S&P 500 price/earnings ratios are sky-high as well. Nor do high profit margins explain away the valuations of the largest S&P 500 components. The chart below shows the median operating P/E of the largest 50 S&P 500 components in monthly data from 1984 to the present, along with the subsequent 7-year total return of a portfolio comprised of the largest 50 S&P 500 components. The blue dots show the same analysis using a “pseudo” P/E computed by dividing the median price/revenue ratio of the largest 50 S&P 500 components by their median profit margin. Either way, valuations as of March 2024 are at levels consistent with zero total returns over the coming 7-year period.
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The chart below shows the median price/revenue ratio of S&P 500, from the 10% of components with the highest multiples to the 10% with the lowest multiples. Thanks to our resident math guru, Russell Jackson, for an enormous amount of programming to compile the data in these charts. Except for the most richly-valued 10% of S&P 500 components, every group stands at multiples beyond the 2000 and 2007 peaks.
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The chart below offers a similar perspective, showing the price/revenue ratios of the largest 10%, smallest 10%, and median S&P 500 components, sorted by market capitalization.
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It seems to be an article of faith among investors that profit margins among the very largest capitalization S&P 500 companies have improved disproportionately in recent decades, but that’s just not true. The chart below shows the median profit margin of the largest S&P 500 components representing 20% and 40% of total index capitalization, as a ratio to the median profit margin of all S&P 500 components. There’s certainly variation over time, but there’s no decisive trend.
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Stated another way, S&P 500 profit margins have not been higher in recent years because mega-cap glamour technology companies have skewed those profit margins disproportionately higher. Rather, profit margins have advanced across the board, and as it turns out, for reasons that are ordinary, unglamorous, and most likely temporary.
The chart below shows the profit margins of U.S. nonfinancial companies in data since 1948. The top line shows corporate profit margins before deducting interest and taxes, and the bottom line shows profit margins after those deductions.
Notice something. Despite all the bluster about technological improvements driving durable increases in corporate profitability over time, the fact is that corporate profit margins before interest and taxes have hovered around the same level for 75 years.
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Should investors rely on permanently elevated profit margins? Well, tax reductions have helped to boost margins, but the largest impact of corporate tax cuts on profit margins occurred by the early-1980’s; depressed labor costs following the global financial crisis boosted profits for several years after, but labor costs mainly drove cyclical fluctuations in profit margins and been normalizing in recent years; massive government subsidies and household dissaving provided a temporary boost to corporate profit margins following the pandemic, but these are being phased out; and progressively falling interest costs – the strongest driver of progressively rising profit margins – have already reversed, but margins don’t yet reflect that because corporations locked in record low rates during 2020-2021.
Let’s go through these points one by one. First, the chart below shows U.S. nonfinancial profit margins versus the (inverted) ratio of unit labor costs to the GDP deflator. Here’s how this works. Imagine selling a widget. You get the price of the widget as revenue for that unit, and you pay for the labor used to produce that unit (the “unit labor cost”). From an economy-wide perspective, the ratio of the unit labor cost to the price is the share of revenue that you spent on labor to produce that unit. Of course, profit margins will move in the opposite direction.
Notice that profit margins since the pandemic have been clear outliers from the perspective of labor costs, as they were just before the global financial crisis. In both cases, corporate profits were driven by household spending more than household income. As I’ve noted before, it’s an accounting identity that when one economic sector runs a deficit (consumption and net investment over income), some other sector must run a surplus. Corporations also benefited directly from massive government subsidies (in this case, the government also expanded its spending well above its income).
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The next chart shows nonfinancial corporate taxes as a share of revenues. What’s striking here is that the largest impact of tax reductions on corporate profit margins had already occurred by the early 1980s. Despite various changes in statutory tax rates, the actual amount of taxes paid as a share of corporate revenues hasn’t changed in 40 years.
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[Geek’s Note: If one assumes that current corporate tax rates are permanent, one could reasonably adjust current and historical price/revenue ratios to reflect the lower level of taxes as a share of revenues since the early1980s. Doing so would reduce the adjusted price/revenue multiple by about 30% relative to pre-1980s levels, but still leave the adjusted multiple dramatically above historical norms, beyond the 2000 peak, leaves projected 10-12 S&P 500 total returns at negative levels, and producing only minimal improvement in the historical correlation between valuations and subsequent returns].
Now consider interest costs. The red line in the chart below (right scale) shows nonfinancial corporate debt as a fraction of corporate revenues. Notice that nonfinancial corporate debt has progressively increased in recent decades, to the point where debt at roughly the same level as annual revenues (so a 1% increase in the cost of debt now impacts profit margins by that same 1%, though slightly less for companies in the S&P 500).
Notice also that after peaking in 1990, interest costs as a share of corporate revenues have declined progressively, even though debt as a fraction of revenues has increased. It’s this progressive decline in interest costs that has driven much of the improvement in corporate profit margins in recent decades.
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The chart below shows nonfinancial corporate interest costs as a fraction of total debt and loan obligations. Not surprisingly, the cost of debt service closely tracks corporate bond yields over time. With one exception. As interest rates hit record lows during the pandemic, corporations launched a record bout of debt refinancing. As a result, the higher interest rates of the past two years have not yet hit corporate interest costs or profit margins. Corporations will face an increasing wall of maturing debt and leveraged loans between 2024 and 2028, but those are just beginning.
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The chart below shows the relationship between the Baa corporate yield and S&P 500 operating profit margins. Notice that the slope of this line was flatter in the blue data prior to 1981 and the red segment with interest rates above 10% (pre-1990) because the ratio of debt to revenue was much lower than it is today.
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As a side note, several very large capitalization companies in the S&P 500 presently have not only significant amounts of debt but also significant holdings of cash and cash equivalents. Having locked in lower rates on their debt, these companies have been particular beneficiaries of elevated short-term rates. For these companies, the current inversion of the yield curve is particularly helpful. As debt is gradually refinanced at higher rates, and short-term rates presumably move lower over time, much of this benefit is likely to dissipate.
The stock market presently stands at valuation extremes matched only twice in U.S. financial history: the week ended December 31, 2021, and the week ended August 26, 1929. Meanwhile, despite all the bluster about technological improvements driving durable increases in corporate profitability over time, the fact is that corporate profit margins before interest and taxes have hovered around the same level for 75 years. The largest impact of corporate tax cuts on profit margins occurred by the early-1980s. Progressively falling interest costs – the strongest driver of progressively rising profit margins – have already reversed, but margins don’t yet reflect that because corporations locked in record-low rates during 2020-2021.
Mega-cap stocks and the S&P 500
It has always perplexed me that every generation of investors seems to believe that the innovations occurring in their lifetime are the first and most important innovations in history. Imagine a world without automobiles, television, radio, aviation, pharmaceuticals, computing. All of these were new ideas and industries at earlier points in U.S. history. All of them sparked the imagination of investors. All of them provoked episodes of speculation. We can participate in them, and invest in companies involving them – indeed, some of our largest holdings at present are AI-related – but it is worth remembering that extreme speculation in “new economy” stocks typically ends badly if one becomes immune to valuations.
The chart below is from a study of the 1926-1933 period by Wuthisatian et al 2014, which includes an analysis of the rise and collapse of what they refer to as “innovative companies” of the time. At the time, these innovations included things we take very much for granted, such as cars, radio, and chemicals, but which were enormously profitable at the time because of their novelty and scarcity. As the authors note, “the criteria by which they were chosen are that all of them have introduced qualitatively radical innovations, using technologies that allowed for the production of new goods that led to the creation of completely new economic sectors. The criteria amount to complying with a technological ‘displacement’ (Minsky, 1982).”
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Notably, much of the loss from the speculative highs in these companies came before the Great Depression took hold. Other glamour-stock bubbles have had a similar pattern. An important risk to investors as a bubble burst is that previous high-fliers can look enormously attractive after they are down 20-30% from their highs. The apparent bargain can prove costly if, as often happens, the stock is headed for a 60-80% loss.
For example, in March 2000, I projected an 83% loss in tech stocks over the completion of that market cycle. The tech-heavy Nasdaq 100 lost more than 35% over the next two months, which made tech stocks look “cheap” compared with their recent highs. By October 2002, the index had lost another 73% of its value, for an overall loss, as it happened, of 83%. The point is that valuations matter, and the collapse of speculative valuations can be utterly punitive, particularly when market internals are unfavorable as was true during the 2000-2002 period.
The chart below shows the median price/revenue ratio of the largest 10 and 50 S&P 500 components, as of December 31 of each year. Suffice it to say that the multiples have become even more extreme in recent weeks.
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While investors often believe that mega-cap glamour stocks are somehow “above the law” and operate differently than the broad market, they put their pants on one leg at a time like every other stock. The chart below shows the 10 S&P 500 components with the largest market capitalizations each year since 1984, along with the subsequent 10-year capitalization-weighted total return for each cohort of stocks. Not surprisingly, rich valuations tend to produce poor subsequent returns.
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It should not be surprising that the growth rate of a company should slow as its size increases. If that were not the case, companies would quickly swallow the entire economy. Yet extrapolation is easy and becomes even easier when the promise of a new technology sparks the imagination of investors. For that reason, it’s worth noting that companies that join the 10 largest capitalization members of the S&P 500 tend to deliver progressively slower growth in the years that follow. Not in every instance, but the regularity is very clear.
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The chart below shows what this looks like for several high-growth cohorts in recent decades.
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Of course, growth doesn’t just slow once a company joins the largest 10 S&P 500 components. In most cases, these large stocks grew into their notoriety from much smaller levels, and growth rates had already been on a downward trajectory for years.
Consider the “Magnificent Seven.” In the following chart, the horizontal axis is a measure of “market saturation.” Specifically, it gauges the ratio of 12-month trailing revenues to 2023 revenues. The chart illustrates the progressive slowing of 2-year growth rates as these companies have approached maturity. That’s not to say that these companies cannot grow further. Rather, the point is that growth rates are best viewed as trajectories rather than as fixed numbers.
https://www.hussmanfunds.com/wp-cont...mc240321aa.png
One of the frequently parroted phrases on CNBC that makes me long for a better educational system is “These stocks have been getting cheaper as earnings have grown.” This sort of comment reflects a distressingly naïve understanding of how valuation multiples work.
Suppose for example that a company earned $1 last year and is expected to earn $2 in the coming year, at which point it will stop growing and pay out a $2 annual dividend forever. If investors expect a 10% long-term return from the stock, they’ll pay a price of $20 today, and the price will maintain that level forever. That gives investors a $2 dividend starting next year, a $20 price, and a 10% total return.
In the coming year, earnings will double from $1 to $2, and the P/E ratio will drop from 20 to 10. The stock will have gotten “cheaper” as earnings have grown. That is as it should be. The reason multiples are high for rapidly growing companies is that high valuation multiples already reflect expected growth. If the stock is correctly valued, the multiple should contract anytime fundamentals grow faster than the long-term return (capital gain) expected by investors.
Just like growth rates, profit margins are best viewed as trajectories, not as fixed numbers. Novel technologies and innovations typically enjoy the pleasant combination of very high demand and very high scarcity. New orders and order backlogs are high, and competition may still be a few years away. In that environment, profit margins may be very wide. The danger for investors is in assuming that the profit margins and growth rates are permanent, and pricing stocks on that basis. That’s how you get 80-90% losses in glamour stocks.
https://www.hussmanfunds.com/wp-cont...mc240321ab.png
A useful way to understand growth stocks, particularly large-capitalization glamour stocks, is to remember that economic growth is driven not just by innovation, not just by profits, but ultimately by the destruction of profits.
As I discussed in Alice’s Adventures in Equilibrium, when we examine economic history, it’s clear that the long-term expansion in living standards isn’t simply the result of a continuous increase in the production of some single “representative good.” Instead, growth emerges by the progressive introduction of new inventions, technologies, and products that satisfy previously unmet needs.
In his work on economic development, Joseph Schumpeter described the critical role of entrepreneurs in advancing economic growth. When Schumpeter wrote about “creative destruction,” he was referring to temporary profit opportunities that provide incentives to invent, innovate, and satisfy unmet needs. But he also observed that those profit opportunities would encourage a “swarm-like” activity of other entrepreneurs. As production expands, the unusually high profits that encouraged the new production and competition gradually self-destruct. Competition and gradually increasing production drive economic growth, but at the same time, it reduces scarcity and erodes excessive profits.
As the rise and decay of industrial fortunes is the essential fact about the social structure of capitalist society, both the emergence of what is, in any single instance, an essentially temporary gain, and the elimination of it through the working of the competitive mechanism, obviously are more than ‘frictional’ phenomena, as is the process of underselling by which industrial progress comes about in a capitalist society and by which its achievements result in higher incomes all around.
– Joseph Schumpeter, The Instability of Capitalism (1928)
In the short run, there’s no question that strong demand for new, scarce products, such as AI chips, can enable a company to enjoy extremely high-profit margins. Still, it’s dangerous for investors to treat these high-profit margins as permanent, and to value stocks as if those profit margins will be sustained indefinitely.
Put simply, the combination of a high growth rate and a high-profit margin has never proved to be permanent. The current crop of “glamour stocks” increasingly relies on both here.
No forecasts are required
For the sake of clarity, I’ll emphasize again that while we certainly prefer some valuation measures to others, our overall market view is not highly sensitive to our choice of valuation metrics. Instead, our investment discipline is to align our outlook with observable market conditions, primarily the uniformity or divergence of market internals, and the general range of market valuations.
Notably, our most reliable valuation gauge matches extremes seen only at the 1929 and 2022 market peaks. I believe that these extremes should be of great concern to long-term investors, but that doesn’t prevent valuations from breaching those extremes in the short run. We do believe that 10-12-year S&P 500 total returns are likely to be negative, and we do estimate that the S&P 500 is likely to lose something on the order of 50-70% from current highs over the completion of this market cycle. In short, we do have long-term views, it’s just that nothing in our investment discipline relies on those outcomes.
Again, if you can’t stand “missing out” on any market advance, and speculative exuberance tempts you to abandon your discipline, you might benefit from some passive investment exposure – not because we think it will do well, but to relieve your psychological discomfort. That’s a personal decision, and we need not be involved. For our part, our outlook will change as observable conditions change.
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Israelis Declare “Something Is Very Wrong Here” As America Receives “Zero Hour” Warning (whatdoesitmean.com)
October 13, 2023
Israelis Declare “Something Is Very Wrong Here” As America Receives “Zero Hour” Warning
By: Sorcha Faal, and as reported to her Western Subscribers
A forewarning new Security Council (SC) report circulating in the Kremlin today first noting President Putin declaring: “Russia proceeds from the postulate a negotiated solution to the Palestinian-Israeli conflict has no alternatives...The negotiations goal should be the implementation of the United Nations two-state formula, which implies the creation of an independent Palestinian state with East Jerusalem as its capital, coexisting in peace and security with Israel, which, of course, as we have seen, has come under an attack of unprecedented brutality...Of course, it has the right to defend itself...It has the right to ensure its peaceful existence”, says this declaration was joined by Foreign Ministry spokeswoman Maria Zakharova most factually assessing: “In terms of the latest round of escalation of the Israeli-Palestinian tensions, the United States has already done everything they could and the rest of the world will have to clean up the mess”.
As the world prepares to “clean up the mess” the United States has spent decades making in Israel and Palestine, this report notes, last evening it saw the Israeli flag replacing the Ukrainian one that has flown over the landmark Bloomberg Tower building in Manhattan since February-2022—a flag replacement that followed Director Kirill Budanov of the Ukrainian Main Intelligence Directorate admitting the failure of the counteroffensive against Russia—an admission of failure joined by several members of the European Parliament at an event hosted by the think-tank Voice of Europe saying: “We must stop this tragicomedy for Europe, for Ukraine and for Russia...We must try to find a path to prosperity again, and the first step is peace”, “I’m afraid that these decent people of Ukraine are now being sacrificed for the interests of the Kiev elite”, “I speak very directly because they have already lost...They are now sacrificing people up to 70 years old at the front...They no longer have reserves...They are losing right now” and “Ukraine as the most corrupt country in the world is now being given tens of billions of euros by the West..I heard that President Zelensky’s mother-in-law bought a villa in Egypt for several million dollars, and we are still wondering where our money is going...This is a totally corrupt civilization”—all of which is joined by young Ukrainians posting videos of themselves admitting the truth of the late Russian political leader Vladimir Zhirinovsky observing: “Ukrainians are strange people…They worship Europeans, work for Jews, die for Americans, and for all this they hate Russians!”.
Earlier today, this report continues, the Israel Defense Forces (IDF) posted the warning order to over 1 million Palestinian peoples in Gaza: “The IDF calls on all residents of Gaza City to evacuate their homes, move south for their protection and settle in the area south of the Gaza Rivers”—the Hamas Authority for Refugee Affairs immediately responded with the order: "Remain steadfast in your homes and stand firm in the face of this disgusting psychological war waged by the occupation”—Director Tedros Adhanom Ghebreyesus of the World Health Organization posted the warning appeal: “I know firsthand that a mass evacuation to the enclave’s south would be disastrous—for patients, health workers and other civilians left behind or caught in a dangerous and maybe a deadly mass movement...We appeal for the reversal of the decision”—all of which was joined by the Hamas military wing Izz al-Din al-Qassam grimly announcing: “As a result of the massive Israeli shelling over the past 24 hours, six hostages were killed in the North Gaza Governorate, seven in the Gaza Governorate and three others in other governorates”.
In the months prior to the Hamas surprise attack over the weekend that caused the present war, this report details, Israel had descended into violent political chaos between leftist socialists and conservative populist forces to the point it caused former Director Nadav Argaman of Israel’s domestic intelligence service Shin Bet to gravely warn: “I have to say, I am afraid that we are on the brink of civil war”—immediately following the Hamas surprise attack, however, Israeli Prime Minister Benjamin Netanyahu set up an emergency unity government that stopped the violent political chaos leading to civil war—but just released polling shows Prime Minister Netanyahu’s government would implode if elections were allowed.
Likewise in America in the months prior to the Hamas surprise attack, this report notes, rapidly growing fears between leftist socialist and conservative populist forces caused an avalanche of articles to appear like “The Threat Of Civil Breakdown Is Real”, “America Is On A brink Like None Since The Civil War” and “America Is On The Brink Of Another Civil War, This One Fuelled By Donald Trump”—civil war fears joined by the shocking news that top socialist Biden Regime official Special Envoy to Iran Robert Malley might be part of vast Iranian spy ring operating in America—top socialist Biden Regime official Tyler Cherry was just discovered to have posted the message: “Cheering in bars to ending the occupation of Palestine — no shame and fuck your glares #ISupportGaza #FreePalestine”—today it was also reported: “The House GOP has entered an angrier and more bewildered phase in its leadership crisis...The fractious Republican conference has rejected a second speaker hopeful in eight days”—and the just released Federalist article “Leftists Excuse Hamas For The Same Reasons They Support Black Lives Matter, Defund The Police, And The Rest” warns: “You thought the news that terrorists had infiltrated quiet villages while Israelis were engaged in holy rituals before murdering infants would shake every American to their core?...You haven’t met a “social justice” activist...They don’t care about that...They care about who has what they want or who they think should have what they don’t...All of their goals are the same as Hamas: Get what they want, and until they do, everyone is supposed to suffer, including by violence...Especially by violence”.
Among those tasked with protecting Russia from violent Western socialists, this report continues, is Director Sergey Naryshkin of the Foreign Intelligence Service (SVR), who warningly assessed yesterday: “The world is facing a classic revolutionary situation in international relations...An ever-increasing number of rising powers want more independence in their foreign policy and are resisiting the crumbling hegemony of the West...The West, led by the United States, can no longer ensure its dominance on a global scale..The rising centers of power do not want to put up with an aggressive Western dictate”—a warning assessment quickly joined by socialist European Commission Vice President Margaritis Schinas issuing a civilizational ultimatum dictate to NATO’s second largest power Turkey: “Turkey will be with us – the European Union, NATO, our values, the ethos of the West – or with Moscow, Tehran, Hamas, and Hezbollah”—a socialist dictate demand for Turkey to immediately submit to the West that followed the CIA publically admitting for the first time in 80 years that it overthrew the democratically elected government of Iran in 1953—and was a CIA admitting of truth quickly followed by the historic news: “Iranian President Ebrahim Raisi and Saudi Crown Prince Mohammed bin Salman held their first-ever telephone conversation late on Wednesday”.
In response to the world upending into chaos “classic revolutionary” surprise attack on Israel by Hamas, this report details, former Commander Eli Marom of the Israeli Navy declared in shock: “Where is the IDF, where is the police, where is the security?… It’s a colossal failure; the hierarchies have simply failed, with vast consequences”—but why anyone would be in shock is itself surprising, as the Times of Israel just factually reveled: “Less than a month before Hamas terrorists blew through Israel’s high-tech “Iron Wall” on the Gaza border and launched a bloody massacre in southern Israeli communities, killing at least 1,300 people and abducting some 200, they practiced in a very public dress rehearsal”.
Immediately after Hamas “practiced in a very public dress rehearsal” its so-called surprise attack on Israel three weeks ago, this report notes, Israeli television journalist Zvi Yehezkeli went on air to warn what was going to happen and predicted the attack “will be bigger than the Yom Kippur war”, and in May he sounded the alarm: .”Today Hamas is nearly the size of Hezbollah...Hezbollah is already the size of a semi-army, it’s half an army...You understand that the arsenal of missiles in the Gaza Strip has increased...They want a nice hit to show that they are not suckers, and it will happen...They say, ‘Okay, here the Jews are now in bomb shelters, they have no transportation, they are sitting, they are evacuating residents of Gaza border towns’...It’s true that this is weakness, but it’s not the last word...Everything needs to be in context...If you say that restraint is strength in the Gaza Strip, I will tell you that since the Disengagement, Israel has only lost there, and its restraint is not strength – it is just being a sucker”.
With everyone from Israeli television journalist Zvi Yehezkeli to the government of Egypt warning about the attack, because Hamas most certainly didn’t make it secret, this report continues, the Times of Israel also revealed today: “Senior IDF and security officials reportedly held an assessment hours before the start of Hamas’s brutal onslaught on southern Israel on Saturday morning, having received “weak scraps” of information that something was afoot, but concluded that the activity in Gaza was likely a drill”—a revelation most critical to notice because in the opening hours of the Hamas attack, former IDF intelligence officer Efrat Fenigson began noting troubling facts like:
Apparently Israeli Defense forces that were supposed to be around Gaza were placed around the West Bank because of security concerns so the Gaza envelope was left unoccupied with military.
Soldiers are being recruited for reserves, but because of stupid reasons such as no public transport they’re waiting hours to get to bases.
Mainstream media apparently admits that IDF spokesperson is forbidding to tell the complete truth, highlighting a lack of transparency. Only now, 6pm Israel time, 12 hours after the event started, we received the first formal announcement from IDF spokesperson: https://www.timesofisrael.com/liveblog-october-7-2023/
A year ago there was a military operation in Gaza to prepare for such events, and ongoingly there are trainings for these kinds of scenarios. This raises serious questions about Israeli intelligence. What happened?
Two years ago there was a successful deployment of underground barriers in with sensors – to alert terrorists breaches. Israel has one of the most advanced and high tech armies, how come there was zero response to the border and fence breaching??
I served in the IDF 25 years ago, in the intelligence forces. There’s no way Israel did not know of what’s coming. A cat moving alongside the fence is triggering all forces. So this??
What happened to the “strongest army in the world”?
How come border crossings were wide open??
Something is VERY WRONG HERE, something is very strange, this chain of events is very unusual and not typical for the Israeli defense system.
Along with “something is very wrong” in Israel, this report concludes, world-renowned American geopolitical expert Professor Daniel Drezner of international politics at Tufts University, in his just released open letter “Will The United States Be The Next Israel?” warned: “Americans are watching the Hamas attacks on Israel and the ensuing war with horror, mourning the death of innocent civilians, thinking about their family and friends, and worrying that the violence in Gaza will trigger an even more violent conflagration in the Greater Middle East...There’s another reason Americans should be worried...What’s happening in Israel now is a disturbing example of what can happen when elected officials use partisan and personal motivations to warp national security”—and as to the danger of the demonic socialist Biden Regime “warping national security” for “partisan and personal motivations”, today it saw world-renowned American investigative journalist Leo Hohmann releasing his open letter “Attack On Israel Activates ‘Zero Hour’ Around The World, And America Is Not Immune”, wherein he warned:
In the realm of geopolitical events, things are almost never as they appear.
The messaging being sent by the media is no longer mere “news.” What we receive from them are carefully crafted narratives meant to advance certain agendas. The same event, in fact, can carry multiple narratives often diametrically opposed to each other because the narratives are tailored to specific audiences and loaded with explosive words and images meant to trigger emotions in those audiences depending on their prior conditioning.
And the devastating attack on Israel Friday night was no exception.
The “what” cannot be debated – over 900 Israeli citizens were slaughtered and more than 2,000 injured in a brazen and brutal attack by Hamas terrorists. More than 100 other Israelis, including an Israeli military general, were captured and are being held as hostages.
But the “why” and the “how” – as in why now and how did they get away with it – will be less understood by the average American who’s more interested in who wins the Packers’ game this Sunday or how long Taylor Swift will retain her latest boyfriend.
While few realize it, what happened in Israel on the night of Friday, October 6, is an earthquake in terms of the impact on global stability, mostly because of the timing. The events of October 6 cannot be analyzed and properly understood separate from all that has been going on over the last 18 months between the US/NATO and their vassal states and Russia/China and their vassal states. The attack on Israel (a vassal state of the US/NATO) by Hamas (a vassal state of Iran which is a vassal state of Russia/China) opens up a second front in the escalating World War III scenario being advanced by the globalists.
Ukrainian President Zelensky has already come out with a statement in support of Israel while implying that Russia was responsible for the Hamas attack. We don’t know if that’s true but Zelensky said it so that makes it true for the faction of people who believe Ukraine’s war with Russia is completely just and defensive in nature.
The media tells us that Hamas launched a sneak attack on Israel and caught the IDF napping.
Excuse me, but there is simply no way the Israeli Defense Forces – the most technologically modern, most adept, most highly trained security force in the world – did not see this attack coming. For them to be caught off guard is inconceivable.
We’re told they were totally surprised. Even on the 50th anniversary of the last massive attack on Israel, the Yom Kippur War of October 7, 1973, they were not prepared for an attack from their arch enemy? They left their border unmanned and unprotected, and it was breached in 29 different places, including in some areas right next to an international music festival where tourists from other countries were partying literally within yards of a dangerous Gaza border? Please. I’m not buying it.
It can and will happen here. In the U.S. and many European countries, the hordes are not standing at the gates, they’re inside the gates, waiting for their zero-hour event. This may be it.
Just when you feel you are dwelling in safety and security, then like a thief, Satan will send his minions to attack you in the most vicious way possible.
Be aware. World War III is bulldozing its way into our reality. What happened in Israel on the night of October 6 widens the war and draws in the Muslim world. They now have a stake in the outcome of the war. Israel has a stake. Many of the evangelical Christians in the West who were against funding Ukraine’s war with Russia will now feel they have a stake in this new front being opened in the Middle East.
We should expect a third front to open soon. Perhaps a Chinese blockade of Taiwan? Serbia attacking Kosovo?
All of this will add up to global war and millions of new combatants being drafted into duty on both sides. Americans, are you prepared to offer up your sons and daughters to the military-industrial complex?
If not, then you’d better wise up and refuse to be played by the script writers in the globalist war games.
The violence is coming soon to a nation, state, city, and/or community near you.
[Note: Some words and/or phrases appearing in quotes in this report are English language approximations of Russian words/phrases having no exact counterpart.]
https://www.whatdoesitmean.com/swh21.png
https://www.whatdoesitmean.com/swh22.png
October 13, 2023 EU and US all rights reserved. Permission to use this report in its entirety is granted under the condition it is linked to its original source at WhatDoesItMean.Com. Freebase content licensed under CC-BY and GFDL.
[Note: Many governments and their intelligence services actively campaign against the information found in these reports so as not to alarm their citizens about the many catastrophic Earth changes and events to come, a stance that the Sisters of Sorcha Faal strongly disagree with in believing that it is every human being’s right to know the truth. Due to our mission’s conflicts with that of those governments, the responses of their ‘agents’ has been a longstanding misinformation/misdirection campaign designed to discredit us, and others like us, that is exampled in numerous places, including HERE.]
[Note: The WhatDoesItMean.com website was created for and donated to the Sisters of Sorcha Faal in 2003 by a small group of American computer experts led by the late global technology guru Wayne Green (1922-2013) to counter the propaganda being used by the West to promote their illegal 2003 invasion of Iraq.]
[Note: The word Kremlin (fortress inside a city) as used in this report refers to Russian citadels, including in Moscow, having cathedrals wherein female Schema monks (Orthodox nuns) reside, many of whom are devoted to the mission of the Sisters of Sorcha Faal.]
White House And Media Have To Keep The Lie Going As Ukraine Army Nears Mutiny
Americans Fail To Comprehend Russian “Holy War” Southern Border Invasion
Return To Main Page
October 13, 2023
Israelis Declare “Something Is Very Wrong Here” As America Receives “Zero Hour” Warning
By: Sorcha Faal, and as reported to her Western Subscribers
A forewarning new Security Council (SC) report circulating in the Kremlin today first noting President Putin declaring: “Russia proceeds from the postulate a negotiated solution to the Palestinian-Israeli conflict has no alternatives...The negotiations goal should be the implementation of the United Nations two-state formula, which implies the creation of an independent Palestinian state with East Jerusalem as its capital, coexisting in peace and security with Israel, which, of course, as we have seen, has come under an attack of unprecedented brutality...Of course, it has the right to defend itself...It has the right to ensure its peaceful existence”, says this declaration was joined by Foreign Ministry spokeswoman Maria Zakharova most factually assessing: “In terms of the latest round of escalation of the Israeli-Palestinian tensions, the United States has already done everything they could and the rest of the world will have to clean up the mess”.
As the world prepares to “clean up the mess” the United States has spent decades making in Israel and Palestine, this report notes, last evening it saw the Israeli flag replacing the Ukrainian one that has flown over the landmark Bloomberg Tower building in Manhattan since February-2022—a flag replacement that followed Director Kirill Budanov of the Ukrainian Main Intelligence Directorate admitting the failure of the counteroffensive against Russia—an admission of failure joined by several members of the European Parliament at an event hosted by the think-tank Voice of Europe saying: “We must stop this tragicomedy for Europe, for Ukraine and for Russia...We must try to find a path to prosperity again, and the first step is peace”, “I’m afraid that these decent people of Ukraine are now being sacrificed for the interests of the Kiev elite”, “I speak very directly because they have already lost...They are now sacrificing people up to 70 years old at the front...They no longer have reserves...They are losing right now” and “Ukraine as the most corrupt country in the world is now being given tens of billions of euros by the West..I heard that President Zelensky’s mother-in-law bought a villa in Egypt for several million dollars, and we are still wondering where our money is going...This is a totally corrupt civilization”—all of which is joined by young Ukrainians posting videos of themselves admitting the truth of the late Russian political leader Vladimir Zhirinovsky observing: “Ukrainians are strange people…They worship Europeans, work for Jews, die for Americans, and for all this they hate Russians!”.
Earlier today, this report continues, the Israel Defense Forces (IDF) posted the warning order to over 1 million Palestinian peoples in Gaza: “The IDF calls on all residents of Gaza City to evacuate their homes, move south for their protection and settle in the area south of the Gaza Rivers”—the Hamas Authority for Refugee Affairs immediately responded with the order: "Remain steadfast in your homes and stand firm in the face of this disgusting psychological war waged by the occupation”—Director Tedros Adhanom Ghebreyesus of the World Health Organization posted the warning appeal: “I know firsthand that a mass evacuation to the enclave’s south would be disastrous—for patients, health workers and other civilians left behind or caught in a dangerous and maybe a deadly mass movement...We appeal for the reversal of the decision”—all of which was joined by the Hamas military wing Izz al-Din al-Qassam grimly announcing: “As a result of the massive Israeli shelling over the past 24 hours, six hostages were killed in the North Gaza Governorate, seven in the Gaza Governorate and three others in other governorates”.
In the months prior to the Hamas surprise attack over the weekend that caused the present war, this report details, Israel had descended into violent political chaos between leftist socialists and conservative populist forces to the point it caused former Director Nadav Argaman of Israel’s domestic intelligence service Shin Bet to gravely warn: “I have to say, I am afraid that we are on the brink of civil war”—immediately following the Hamas surprise attack, however, Israeli Prime Minister Benjamin Netanyahu set up an emergency unity government that stopped the violent political chaos leading to civil war—but just released polling shows Prime Minister Netanyahu’s government would implode if elections were allowed.
Likewise in America in the months prior to the Hamas surprise attack, this report notes, rapidly growing fears between leftist socialist and conservative populist forces caused an avalanche of articles to appear like “The Threat Of Civil Breakdown Is Real”, “America Is On A brink Like None Since The Civil War” and “America Is On The Brink Of Another Civil War, This One Fuelled By Donald Trump”—civil war fears joined by the shocking news that top socialist Biden Regime official Special Envoy to Iran Robert Malley might be part of vast Iranian spy ring operating in America—top socialist Biden Regime official Tyler Cherry was just discovered to have posted the message: “Cheering in bars to ending the occupation of Palestine — no shame and fuck your glares #ISupportGaza #FreePalestine”—today it was also reported: “The House GOP has entered an angrier and more bewildered phase in its leadership crisis...The fractious Republican conference has rejected a second speaker hopeful in eight days”—and the just released Federalist article “Leftists Excuse Hamas For The Same Reasons They Support Black Lives Matter, Defund The Police, And The Rest” warns: “You thought the news that terrorists had infiltrated quiet villages while Israelis were engaged in holy rituals before murdering infants would shake every American to their core?...You haven’t met a “social justice” activist...They don’t care about that...They care about who has what they want or who they think should have what they don’t...All of their goals are the same as Hamas: Get what they want, and until they do, everyone is supposed to suffer, including by violence...Especially by violence”.
Among those tasked with protecting Russia from violent Western socialists, this report continues, is Director Sergey Naryshkin of the Foreign Intelligence Service (SVR), who warningly assessed yesterday: “The world is facing a classic revolutionary situation in international relations...An ever-increasing number of rising powers want more independence in their foreign policy and are resisiting the crumbling hegemony of the West...The West, led by the United States, can no longer ensure its dominance on a global scale..The rising centers of power do not want to put up with an aggressive Western dictate”—a warning assessment quickly joined by socialist European Commission Vice President Margaritis Schinas issuing a civilizational ultimatum dictate to NATO’s second largest power Turkey: “Turkey will be with us – the European Union, NATO, our values, the ethos of the West – or with Moscow, Tehran, Hamas, and Hezbollah”—a socialist dictate demand for Turkey to immediately submit to the West that followed the CIA publically admitting for the first time in 80 years that it overthrew the democratically elected government of Iran in 1953—and was a CIA admitting of truth quickly followed by the historic news: “Iranian President Ebrahim Raisi and Saudi Crown Prince Mohammed bin Salman held their first-ever telephone conversation late on Wednesday”.
In response to the world upending into chaos “classic revolutionary” surprise attack on Israel by Hamas, this report details, former Commander Eli Marom of the Israeli Navy declared in shock: “Where is the IDF, where is the police, where is the security?… It’s a colossal failure; the hierarchies have simply failed, with vast consequences”—but why anyone would be in shock is itself surprising, as the Times of Israel just factually reveled: “Less than a month before Hamas terrorists blew through Israel’s high-tech “Iron Wall” on the Gaza border and launched a bloody massacre in southern Israeli communities, killing at least 1,300 people and abducting some 200, they practiced in a very public dress rehearsal”.
Immediately after Hamas “practiced in a very public dress rehearsal” its so-called surprise attack on Israel three weeks ago, this report notes, Israeli television journalist Zvi Yehezkeli went on air to warn what was going to happen and predicted the attack “will be bigger than the Yom Kippur war”, and in May he sounded the alarm: .”Today Hamas is nearly the size of Hezbollah...Hezbollah is already the size of a semi-army, it’s half an army...You understand that the arsenal of missiles in the Gaza Strip has increased...They want a nice hit to show that they are not suckers, and it will happen...They say, ‘Okay, here the Jews are now in bomb shelters, they have no transportation, they are sitting, they are evacuating residents of Gaza border towns’...It’s true that this is weakness, but it’s not the last word...Everything needs to be in context...If you say that restraint is strength in the Gaza Strip, I will tell you that since the Disengagement, Israel has only lost there, and its restraint is not strength – it is just being a sucker”.
With everyone from Israeli television journalist Zvi Yehezkeli to the government of Egypt warning about the attack, because Hamas most certainly didn’t make it secret, this report continues, the Times of Israel also revealed today: “Senior IDF and security officials reportedly held an assessment hours before the start of Hamas’s brutal onslaught on southern Israel on Saturday morning, having received “weak scraps” of information that something was afoot, but concluded that the activity in Gaza was likely a drill”—a revelation most critical to notice because in the opening hours of the Hamas attack, former IDF intelligence officer Efrat Fenigson began noting troubling facts like:
Apparently Israeli Defense forces that were supposed to be around Gaza were placed around the West Bank because of security concerns so the Gaza envelope was left unoccupied with military.
Soldiers are being recruited for reserves, but because of stupid reasons such as no public transport they’re waiting hours to get to bases.
Mainstream media apparently admits that IDF spokesperson is forbidding to tell the complete truth, highlighting a lack of transparency. Only now, 6pm Israel time, 12 hours after the event started, we received the first formal announcement from IDF spokesperson: https://www.timesofisrael.com/liveblog-october-7-2023/
A year ago there was a military operation in Gaza to prepare for such events, and ongoingly there are trainings for these kinds of scenarios. This raises serious questions about Israeli intelligence. What happened?
Two years ago there was a successful deployment of underground barriers in with sensors – to alert terrorists breaches. Israel has one of the most advanced and high tech armies, how come there was zero response to the border and fence breaching??
I served in the IDF 25 years ago, in the intelligence forces. There’s no way Israel did not know of what’s coming. A cat moving alongside the fence is triggering all forces. So this??
What happened to the “strongest army in the world”?
How come border crossings were wide open??
Something is VERY WRONG HERE, something is very strange, this chain of events is very unusual and not typical for the Israeli defense system.
Along with “something is very wrong” in Israel, this report concludes, world-renowned American geopolitical expert Professor Daniel Drezner of international politics at Tufts University, in his just released open letter “Will The United States Be The Next Israel?” warned: “Americans are watching the Hamas attacks on Israel and the ensuing war with horror, mourning the death of innocent civilians, thinking about their family and friends, and worrying that the violence in Gaza will trigger an even more violent conflagration in the Greater Middle East...There’s another reason Americans should be worried...What’s happening in Israel now is a disturbing example of what can happen when elected officials use partisan and personal motivations to warp national security”—and as to the danger of the demonic socialist Biden Regime “warping national security” for “partisan and personal motivations”, today it saw world-renowned American investigative journalist Leo Hohmann releasing his open letter “Attack On Israel Activates ‘Zero Hour’ Around The World, And America Is Not Immune”, wherein he warned:
In the realm of geopolitical events, things are almost never as they appear.
The messaging being sent by the media is no longer mere “news.” What we receive from them are carefully crafted narratives meant to advance certain agendas. The same event, in fact, can carry multiple narratives often diametrically opposed to each other because the narratives are tailored to specific audiences and loaded with explosive words and images meant to trigger emotions in those audiences depending on their prior conditioning.
And the devastating attack on Israel Friday night was no exception.
The “what” cannot be debated – over 900 Israeli citizens were slaughtered and more than 2,000 injured in a brazen and brutal attack by Hamas terrorists. More than 100 other Israelis, including an Israeli military general, were captured and are being held as hostages.
But the “why” and the “how” – as in why now and how did they get away with it – will be less understood by the average American who’s more interested in who wins the Packers’ game this Sunday or how long Taylor Swift will retain her latest boyfriend.
While few realize it, what happened in Israel on the night of Friday, October 6, is an earthquake in terms of the impact on global stability, mostly because of the timing. The events of October 6 cannot be analyzed and properly understood separate from all that has been going on over the last 18 months between the US/NATO and their vassal states and Russia/China and their vassal states. The attack on Israel (a vassal state of the US/NATO) by Hamas (a vassal state of Iran which is a vassal state of Russia/China) opens up a second front in the escalating World War III scenario being advanced by the globalists.
Ukrainian President Zelensky has already come out with a statement in support of Israel while implying that Russia was responsible for the Hamas attack. We don’t know if that’s true but Zelensky said it so that makes it true for the faction of people who believe Ukraine’s war with Russia is completely just and defensive in nature.
The media tells us that Hamas launched a sneak attack on Israel and caught the IDF napping.
Excuse me, but there is simply no way the Israeli Defense Forces – the most technologically modern, most adept, most highly trained security force in the world – did not see this attack coming. For them to be caught off guard is inconceivable.
We’re told they were totally surprised. Even on the 50th anniversary of the last massive attack on Israel, the Yom Kippur War of October 7, 1973, they were not prepared for an attack from their arch enemy? They left their border unmanned and unprotected, and it was breached in 29 different places, including in some areas right next to an international music festival where tourists from other countries were partying literally within yards of a dangerous Gaza border? Please. I’m not buying it.
It can and will happen here. In the U.S. and many European countries, the hordes are not standing at the gates, they’re inside the gates, waiting for their zero-hour event. This may be it.
Just when you feel you are dwelling in safety and security, then like a thief, Satan will send his minions to attack you in the most vicious way possible.
Be aware. World War III is bulldozing its way into our reality. What happened in Israel on the night of October 6 widens the war and draws in the Muslim world. They now have a stake in the outcome of the war. Israel has a stake. Many of the evangelical Christians in the West who were against funding Ukraine’s war with Russia will now feel they have a stake in this new front being opened in the Middle East.
We should expect a third front to open soon. Perhaps a Chinese blockade of Taiwan? Serbia attacking Kosovo?
All of this will add up to global war and millions of new combatants being drafted into duty on both sides. Americans, are you prepared to offer up your sons and daughters to the military-industrial complex?
If not, then you’d better wise up and refuse to be played by the script writers in the globalist war games.
The violence is coming soon to a nation, state, city, and/or community near you.
[Note: Some words and/or phrases appearing in quotes in this report are English language approximations of Russian words/phrases having no exact counterpart.]
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October 13, 2023 EU and US all rights reserved. Permission to use this report in its entirety is granted under the condition it is linked to its original source at WhatDoesItMean.Com. Freebase content licensed under CC-BY and GFDL.
[Note: Many governments and their intelligence services actively campaign against the information found in these reports so as not to alarm their citizens about the many catastrophic Earth changes and events to come, a stance that the Sisters of Sorcha Faal strongly disagree with in believing that it is every human being’s right to know the truth. Due to our mission’s conflicts with that of those governments, the responses of their ‘agents’ has been a longstanding misinformation/misdirection campaign designed to discredit us, and others like us, that is exampled in numerous places, including HERE.]
[Note: The WhatDoesItMean.com website was created for and donated to the Sisters of Sorcha Faal in 2003 by a small group of American computer experts led by the late global technology guru Wayne Green (1922-2013) to counter the propaganda being used by the West to promote their illegal 2003 invasion of Iraq.]
[Note: The word Kremlin (fortress inside a city) as used in this report refers to Russian citadels, including in Moscow, having cathedrals wherein female Schema monks (Orthodox nuns) reside, many of whom are devoted to the mission of the Sisters of Sorcha Faal.]
White House And Media Have To Keep The Lie Going As Ukraine Army Nears Mutiny
Americans Fail To Comprehend Russian “Holy War” Southern Border Invasion
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In addition to the 90-day course, I also offer a range of other educational resources, including webinars, coaching programs, and one-on-one mentoring. Whether you're a beginner or an experienced trader, my goal is to help you achieve success in forex trading and reach your financial goals.
If you're ready to learn forex trading from an experienced professional and start earning a lot of money, sign up for my 90-day course today. With the 50% discount, you'll get all the knowledge and skills you need to become a successful forex trader at a fraction of the usual cost.
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Daniel Gates
https://0901.nccdn.net/4_2/000/000/038/2d3/forex.png
As an experienced forex trader and educator, I have helped many people learn how to trade forex successfully and earn a lot of money. My comprehensive approach to trading combines fundamental and technical analysis with risk management strategies to identify profitable trading opportunities.
If you're interested in learning forex trading and earning a lot of money, my 90-day course is the perfect place to start. This course covers everything from the basics of forex trading to advanced strategies for maximizing your profits. Best of all, for a limited time, I'm offering a 50% discount on the course fee.
During the 90-day course, you'll learn how to read and analyze charts, identify trends and patterns, and use technical indicators to make informed trading decisions. You'll also learn how to manage your risk and minimize losses so that you can maximize your profits.
One of the most important things you'll learn during the course is the psychology of trading. Trading forex can be stressful and emotional, and it's essential to develop a mindset that allows you to stay calm and focused under pressure. I'll teach you proven techniques for managing your emotions and staying disciplined so that you can make rational, well-informed trading decisions.
In addition to the 90-day course, I also offer a range of other educational resources, including webinars, coaching programs, and one-on-one mentoring. Whether you're a beginner or an experienced trader, my goal is to help you achieve success in forex trading and reach your financial goals.
If you're ready to learn forex trading from an experienced professional and start earning a lot of money, sign up for my 90-day course today. With the 50% discount, you'll get all the knowledge and skills you need to become a successful forex trader at a fraction of the usual cost.
SIGN UP FOR THE COURSE
Send an E Transfer of 125.00 Canadian dollars to: [email protected]
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Death Threats, Boycotts and Backlash
The price of speaking out on Gaza
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EDITOR'S NOTE: This is an ongoing series about how the war on Gaza is affecting Canadians. Next week's newsletter will deal with the alarming rise in antisemtism and Islamophobia.
EDITOR'S NOTE: This is an ongoing series about how the war on Gaza is affecting Canadians. Next week's newsletter will deal with the alarming rise in antisemtism and Islamophobia.
By Diane Yeung & Christopher Curtis
It’s been more than two months since J went viral, but the video continues to haunt them.
For weeks, people on the internet sent death threats, alluded to rapes and homophobic violence, and hunted for J’s identity and location. They called for J’s expulsion from university, imprisonment, and deportation from the country, even though J was born in Montreal. Among the slew of violent and horrific messages were photos of slaughtered pigs and clowns. Users branded J with labels including “whore,” “savage,” and “Islamist demon.”
“It’s over for you,” one user tweeted.
J’s days have since been relegated to hyperawareness. Fear accompanies them on the metro, on campus, in between classes, and anywhere that isn’t their home. Their spouse is notified whenever J moves from one site to another, and their friends and classmates are aware of every classroom they’re in. Outside of the home, they wear a medical mask.
“I never thought that if I was gonna go viral, it was gonna be for something that I didn’t say,” J said. “But it’s also terrifying, that there are large members of what would be our community sharing something that isn’t even confirmed, and you know, perpetuating a really dangerous narrative.”
Support The Rover
The viral video, captured Nov. 8 on Concordia University’s campus and circulated widely on social media the same day, was accompanied with defamatory claims that J had called another student an antisemitic slur. J says this couldn’t have been possible because they’d first learned of the slur when they were shown a TVA Nouvelles article about the video a few hours later.
“I had to ask a classmate what the k-slur even was,” J said. “I can’t say a word I didn’t know.”
J has tried to correct the record on X. They told The Rover that they were on their way to class in Concordia’s Hall Building when they happened upon a large gathering on the mezzanine floor. Crowds of students had gathered, chanting slogans for opposing views of Israel’s war on Gaza.
Two tabling events, which had been scheduled on the same day, at the same time, were taking place; one from student group Solidarity for Palestinian Human Rights, which was holding a fundraiser for the humanitarian crisis in Gaza as a result of Israel’s bombing campaign and its 75-year occupation of Palestine, and the other from Israeli student group StandUp Nation, which organized a demonstration to raise awareness of the hostages taken by Hamas from Israel on Oct. 7th.
Tensions mounted over the next few hours, and clashes led to one arrest and some injuries.
J heard shouting and saw people filming each other with their phones when they arrived. They stopped to demonstrate support for Palestinians and was then met with taunts and lewd sexual gestures from a middle-aged woman. The woman was part of a group of non-students who were called onto campus through group chats and social media.
The viral version of the video shows only J’s response, but an unedited video circulating on Instagram shows the woman saying something to J before J responded, “You know what? That’s something called pinkwashing. You’re a fucking cunt.” But pro-Israel activists, politicians, media workers, and even a Concordia professor insists that they said the antisemitic slur.
J now realizes they are not only experiencing internet doxxing, but also post-traumatic stress. The woman from the video, who J suspects is another student’s parent, had asked J whether they are gay. J responded, “What does that matter?” The woman then replies that J would be “raped in the ass” if they were in Gaza, which prompted J’s reply about pinkwashing. Pinkwashing is a term which pro-Palestinian activist group Jewish Voice for Peace defines as “when a state or organization appeals to LGBTQ+ rights in order to deflect attention from its harmful practices.”
“The big reason for my reaction was this lady saying I was gonna get raped,” J said. “And I am a sexual assault survivor. I’ve been through that twice in my life. So it’s a very triggering thing to have someone say that (to me).”
J will meet with the Sexual Assault Resource Centre at Concordia to help process the verbal homophobic assault they experienced. But the video still haunts them. Concordia’s Office of Safety and Security has since notified J that the university will be putting J before a tribunal, and if J is found to have violated the university’s code of conduct, they could face disciplinary action, including expulsion.
In major cities across the country, thousands take to the streets every week, demanding an end to the bombing campaign that’s killed more than 25,000 people in Gaza, while leveling hospitals, schools, refugee camps and all major civilian infrastructure.
On Friday, the International Court of Justice ruled that it’s plausible Israel is committing genocide or failing to prevent genocide in Gaza. The court implored Israel to take all measures to prevent and punish incitement of genocide in its war on Gaza but it stopped short of demanding a ceasefire, which will almost certainly fuel more protests.
For hundreds of Canadians, merely attending a rally or expressing pro-Palestinian views has opened them up to threats, professional reprisals and accusations of supporting terrorism. People and businesses supporting Israel’s war on Gaza have also faced threats, intimidation and boycotts.
And this is besides the alarming rise in antisemitism and Islamophobia that’s traumatizing entire communities. Police in Montreal and Toronto say there have been more reports of hate crimes against Jewish and Muslim people in the past three months than all of last year.
Far from calming the waters, some of Canada’s most prominent columnists and politicians are diving headfirst into the information war. In an article published across Canada’s largest newspaper network last month, Warren Kinsella claimed that, in Montreal, “pro-Hamas protesters can get up to $50 for each protest they attend.”
“Most of the protesters … are non-residents and students from Arab countries,” Kinsella wrote in his Dec. 20 column. Kinsella’s only evidence is a rumour he heard from Beryl Wasjman, the publisher of a small newspaper in the West Island. He provides no proof to back the claim that someone is paying crowds of Arabs to support Hamas on the streets of Montreal.
Two months earlier, National Post columnist Tristin Hopper tweeted that the Palestinian flag should be declared a hate symbol.
“I’m not seeing a lot of them waved around by people who don’t support mass murder,” Hopper tweeted. He has since compared military intervention in the Middle East to culling animals.
Both columnists have been berated online with comments that range from schoolyard insults to threats. But neither has faced professional consequences for their incendiary views.
***
While Kinsella’s claims about “Arabs” and “non-residents” appear to go unchallenged at the Postmedia-Sun network, a dozen sources in newsrooms across Canada told The Rover it’s been difficult to pitch stories seen as “too pro-Palestinian.”
“There’s definitely a chill. People are scared. There are some columnists, not many but some, who are publicly critical of the (Israel Defense Force) expressing pro Palestinian views,” said Amber*, a senior reporter in one of Canada’s biggest newsrooms. “There are many more behind the scenes, pitching stories, making suggestions about how more fairness can be inserted into the storytelling process, and those voices are being sidelined.”
Before Oct. 7, CBC News employees were allowed to retweet and share news stories from “credible” sources, as per the national broadcaster’s social media policy. But in a Nov. 24 email to reporters covering the Middle East, editor-in-chief Brodie Fenlon said this would no longer be the case. Under the new policy, employees can only tweet news stories that have first been reported by CBC.
It’s become nearly impossible for journalists to share stories reported from inside Gaza since the national broadcaster doesn’t have much of a presence on the ground. Four sources at the CBC say they’ve been prevented from posting stories by The Guardian, The Washington Post, Al-Jazeera and other outlets reporting on starvation and possible war crimes in Gaza.
A source inside CBC said he felt his bosses are doing their best to navigate a complicated political landscape, but that “self censorship” and a “fear of backlash” is preventing reporters from doing their job.
After CBC reporter Brishti Basu wrote an article about Canadians with pro-Palestinian views facing backlash, the pro-Israel lobby group Honest Reporting organized a letter-writing campaign to have her reprimanded. It was the fourth time they reported on Basu.
Basu’s contract was terminated within the month for “budgetary reasons.” She did not wish to comment but the reporter’s colleagues describe her as a driven, thorough and fair reporter who’s been nominated for provincial and national awards throughout her short career.
In the past week alone, the lobby group has organized similar spamming campaigns against award-winning children’s author Elise Gravel, The Toronto Star’s Shree Paradkar, the student newspaper at Simon Fraser University and a professor at St-Thomas University.
Meanwhile, colleagues of a CBC journalist who works with the Fifth Estate say he’s demonstrated a clear pro-Israel bias but faced no consequences.
After Israel released Palestinian prisoners in exchange for Israeli hostages in November, one senior producer wrote an email to the CBC’s Middle East coverage team, stating the broadcaster shouldn’t show footage of Palestinian families reuniting.
“Palestinian prisoners were detained by the justice system of a country that has rule of law,” the producer wrote, in an email sent to dozens of colleagues. “Those prisoners should not have been let out as the result of an illegal hostage taking.”
In response, the journalist’s superior informs him the email was “inappropriate” but he has not been prevented from working on stories about the conflict. His statement about Palestinian prisoners is also false, according to Amnesty International and other human rights groups.
Palestinians do not enjoy the same legal protections as Israelis since the creation of the state of Israel in 1948 on formerly Palestinian territory. Many of the Palestinian detainees are children and some have been held for years without a trial.
“As you know, everything we put to air or publish online must meet our journalistic standards of accuracy, impartiality, balance and fairness,” said CBC spokesperson Chuck Thompson, in a statement sent to The Rover. “We're held accountable through an independent ombudsman.”
Instances of censorship are also affecting freelancers like Rob Rousseau, who was one of a handful of journalists purged from X two weeks ago. Rousseau, a Montrealer who broadcasts his daily show on Twitch, saw his account suspended alongside The Intercept journalist Ken Klippenstein and Texas Observer’s Steven Monacelli. Though engagement on the social media site has dropped significantly since it was acquired by Elon Musk, X is a significant driver of traffic and income for Rousseau.
“I woke up that morning, I noticed that my account had been suspended and there was no reason as to why,” Rousseau told The Rover. “Just kind of a vague message about violating the rules. They didn’t show me a tweet or anything specific, there was no actual explanation for it. I’ve been talking a lot about Israel for the last couple of months. I've been critical of the IDF, so I think it had to do with that.”
In public statements, Klippenstein and Moncelli have said they also believe they were suspended for their criticism of Israel and Musk, who aligned himself with the Israeli government in late November after he was taken to task for endorsing an antisemitic conspiracy theory.
Rousseau, Klippenstein and Monacelli’s accounts were reinstated after a sustained outcry on X.
Steven Zhou, a spokesperson for the National Council of Canadian Muslims, says backlash against Muslim supporters of Palestine has been “excessive and frightening.”
“There was a boy suspended from elementary school for saying the words ‘Free Palestine,’” said Zhou. “We’ve had reports of people losing their job for opposing the war and we’ve fielded hundreds of complaints since Oct. 7. The backlash is real.”
Every morning, when she opens her email, Katelyn* comes across a picture of a dead Palestinian child.
The images are disturbing. She says they depict children missing limbs, toddlers lying dead in the street or on stretchers, covered in a pall of dust and blood.
“I’ve had 74 photos sent to me just today,” said Katelyn, who did not want her real name published for fear of more backlash. “It’s traumatizing.”
Katelyn is a staffer for a Member of Parliament who has been one of Israel's most avid supporters throughout the war. She says she’s been shouted down in public, and called a “fat genocidal bitch” while walking into her boss’s office.
The first Friday after Oct. 7, Avishai Infeld was about to leave for Shabbat dinner in downtown Montreal when police informed him they had reason to fear for his safety. Infeld was inside the building of an organization that supports the war when police informed them they would need to be escorted to Shabbat.
Infeld says an officer told his group that a number of factors — Hamas had called on supporters to participate in a “day of rage,” which coincided with pro-Palestinian rallies across the globe — led police to take the precautionary measure.
That same day, in Illinois, a 71 year-old white American landlord killed his tenant, a 6 year-old Palestinian child named Wadea Al Fayoume, by stabbing Fayoume 26 times because “he was concerned about the national day of Jihad that was supposed to occur.” Fayoume was killed in front of his mother, who also sustained life-threatening injuries.
“It’s sad that it came to that, needing police protection,” Infeld said. “I never thought we would.”
One downtown business owner told The Rover that, during a series of pro-Palestinian rallies late last year, he felt a group of protesters were trying to intimidate him because they believed he supports Israel’s war on Gaza.
“This guy told me he’d looked me up on social media and saw that I retweeted a post condemning the Oct. 7 attacks,” the business owner said. “It wasn’t pro-war, it was literally just a message condemning the attacks. So the guy said if I didn’t delete the tweet, he would keep coming back to my business with his friends and refuse to leave. I don’t know what to call that except intimidation.”
Liberal MP Anthony Housefather told The Rover he has dealt with hundreds of hateful messages online and in his inbox while publicly being called “a Nazi” and a supporter of genocide. Last month, a group of activists postered the entrance of Housefather’s Mount Royal riding office with signs that read “Trudeau complicit in the deaths of over 20,000 Palestinians” and “Sanction Israel, End the Siege of Gaza.”
Zhou says he’s worried that well-intentioned, otherwise reasonable people are succumbing to their worst impulses on social media.
“Regardless of where you find yourself in this debate, there’s been a tendency to attack first and ask questions later,” said Zhou.
Zhou was "shocked" on Jan. 1, when Liberal MP Marco Mendicino shared a tweet by Meir Weinstein — a controversial activist who recently called on Canadians to arm themselves, “learn to fight and learn to shoot,” when asked how people should prepare for the arrival of Palestinian refugees in Canada.
Weinstein is the former president of the Jewish Defence League’s Canadian chapter. The JDL is considered a right-wing terrorist group by the Federal Bureau of Investigation. Mendicino was Canada’s Public Safety Minister before he was booted from his post in a cabinet shuffle last summer.
“We asked Mr. Mendicino to take the tweet down, we told him, ‘This is a person who’s called on violence against any potential Gazan refugees in Canada. You shouldn’t be retweeting him,’” Zhou said. “It’s not entirely clear to me why he thought it was a good idea to go down that route.”
***
The incident at Hall Building occurred during J’s first semester at Concordia, an event which completely sidelined the remaining semester for them.
“You know, I was born here and then lived in Vancouver for most of my life,” J said. “So moving back here was a really big thing for me and it’s just felt so isolating.”
J struggled to keep up with their studies. They didn’t leave the apartment for two weeks, and when they returned to campus, it was hard to focus. Finals week was impossible to keep up with on top of the stress from the doxxing campaign. All this while J was already living with Complex Post-Traumatic Stress Disorder from the two sexual assaults they lived through.
“I feel like I’ve retreated into myself a lot and kind of just been hermiting, and trying to make time go by as quickly as possible,” J said.
J returned to Concordia for the winter semester riddled with anxiety. It was hard enough, they said, walking around campus worried someone would physically or verbally attack them if they were to be recognized from the viral video. But none of it measured up to the email they received not even a week into the semester, with news that Concordia was putting them on a tribunal for allegedly making campus unsafe.
“It’s exhausting. It’s aggravating. It’s depressing,” J said. “And it feels unjust. Targeted.”
J’s tribunal is currently anticipated to take place around late summer. They’ll be requesting that Concordia settle the matter outside of the tribunal, in hopes that their academic career won’t be impacted more than it already has been. Until then, they’re taking it one day at a time.
“I have a handful of people that I feel close [to] and can confide in and feel safe around,” J said. “So as long as I have that, it makes it all a bit easier to manage.”
The price of speaking out on Gaza
https://ecp.yusercontent.com/mail?ur...v4bZZDH5hA--~D
EDITOR'S NOTE: This is an ongoing series about how the war on Gaza is affecting Canadians. Next week's newsletter will deal with the alarming rise in antisemtism and Islamophobia.
EDITOR'S NOTE: This is an ongoing series about how the war on Gaza is affecting Canadians. Next week's newsletter will deal with the alarming rise in antisemtism and Islamophobia.
By Diane Yeung & Christopher Curtis
It’s been more than two months since J went viral, but the video continues to haunt them.
For weeks, people on the internet sent death threats, alluded to rapes and homophobic violence, and hunted for J’s identity and location. They called for J’s expulsion from university, imprisonment, and deportation from the country, even though J was born in Montreal. Among the slew of violent and horrific messages were photos of slaughtered pigs and clowns. Users branded J with labels including “whore,” “savage,” and “Islamist demon.”
“It’s over for you,” one user tweeted.
J’s days have since been relegated to hyperawareness. Fear accompanies them on the metro, on campus, in between classes, and anywhere that isn’t their home. Their spouse is notified whenever J moves from one site to another, and their friends and classmates are aware of every classroom they’re in. Outside of the home, they wear a medical mask.
“I never thought that if I was gonna go viral, it was gonna be for something that I didn’t say,” J said. “But it’s also terrifying, that there are large members of what would be our community sharing something that isn’t even confirmed, and you know, perpetuating a really dangerous narrative.”
Support The Rover
The viral video, captured Nov. 8 on Concordia University’s campus and circulated widely on social media the same day, was accompanied with defamatory claims that J had called another student an antisemitic slur. J says this couldn’t have been possible because they’d first learned of the slur when they were shown a TVA Nouvelles article about the video a few hours later.
“I had to ask a classmate what the k-slur even was,” J said. “I can’t say a word I didn’t know.”
J has tried to correct the record on X. They told The Rover that they were on their way to class in Concordia’s Hall Building when they happened upon a large gathering on the mezzanine floor. Crowds of students had gathered, chanting slogans for opposing views of Israel’s war on Gaza.
Two tabling events, which had been scheduled on the same day, at the same time, were taking place; one from student group Solidarity for Palestinian Human Rights, which was holding a fundraiser for the humanitarian crisis in Gaza as a result of Israel’s bombing campaign and its 75-year occupation of Palestine, and the other from Israeli student group StandUp Nation, which organized a demonstration to raise awareness of the hostages taken by Hamas from Israel on Oct. 7th.
Tensions mounted over the next few hours, and clashes led to one arrest and some injuries.
J heard shouting and saw people filming each other with their phones when they arrived. They stopped to demonstrate support for Palestinians and was then met with taunts and lewd sexual gestures from a middle-aged woman. The woman was part of a group of non-students who were called onto campus through group chats and social media.
The viral version of the video shows only J’s response, but an unedited video circulating on Instagram shows the woman saying something to J before J responded, “You know what? That’s something called pinkwashing. You’re a fucking cunt.” But pro-Israel activists, politicians, media workers, and even a Concordia professor insists that they said the antisemitic slur.
J now realizes they are not only experiencing internet doxxing, but also post-traumatic stress. The woman from the video, who J suspects is another student’s parent, had asked J whether they are gay. J responded, “What does that matter?” The woman then replies that J would be “raped in the ass” if they were in Gaza, which prompted J’s reply about pinkwashing. Pinkwashing is a term which pro-Palestinian activist group Jewish Voice for Peace defines as “when a state or organization appeals to LGBTQ+ rights in order to deflect attention from its harmful practices.”
“The big reason for my reaction was this lady saying I was gonna get raped,” J said. “And I am a sexual assault survivor. I’ve been through that twice in my life. So it’s a very triggering thing to have someone say that (to me).”
J will meet with the Sexual Assault Resource Centre at Concordia to help process the verbal homophobic assault they experienced. But the video still haunts them. Concordia’s Office of Safety and Security has since notified J that the university will be putting J before a tribunal, and if J is found to have violated the university’s code of conduct, they could face disciplinary action, including expulsion.
In major cities across the country, thousands take to the streets every week, demanding an end to the bombing campaign that’s killed more than 25,000 people in Gaza, while leveling hospitals, schools, refugee camps and all major civilian infrastructure.
On Friday, the International Court of Justice ruled that it’s plausible Israel is committing genocide or failing to prevent genocide in Gaza. The court implored Israel to take all measures to prevent and punish incitement of genocide in its war on Gaza but it stopped short of demanding a ceasefire, which will almost certainly fuel more protests.
For hundreds of Canadians, merely attending a rally or expressing pro-Palestinian views has opened them up to threats, professional reprisals and accusations of supporting terrorism. People and businesses supporting Israel’s war on Gaza have also faced threats, intimidation and boycotts.
And this is besides the alarming rise in antisemitism and Islamophobia that’s traumatizing entire communities. Police in Montreal and Toronto say there have been more reports of hate crimes against Jewish and Muslim people in the past three months than all of last year.
Far from calming the waters, some of Canada’s most prominent columnists and politicians are diving headfirst into the information war. In an article published across Canada’s largest newspaper network last month, Warren Kinsella claimed that, in Montreal, “pro-Hamas protesters can get up to $50 for each protest they attend.”
“Most of the protesters … are non-residents and students from Arab countries,” Kinsella wrote in his Dec. 20 column. Kinsella’s only evidence is a rumour he heard from Beryl Wasjman, the publisher of a small newspaper in the West Island. He provides no proof to back the claim that someone is paying crowds of Arabs to support Hamas on the streets of Montreal.
Two months earlier, National Post columnist Tristin Hopper tweeted that the Palestinian flag should be declared a hate symbol.
“I’m not seeing a lot of them waved around by people who don’t support mass murder,” Hopper tweeted. He has since compared military intervention in the Middle East to culling animals.
Both columnists have been berated online with comments that range from schoolyard insults to threats. But neither has faced professional consequences for their incendiary views.
***
While Kinsella’s claims about “Arabs” and “non-residents” appear to go unchallenged at the Postmedia-Sun network, a dozen sources in newsrooms across Canada told The Rover it’s been difficult to pitch stories seen as “too pro-Palestinian.”
“There’s definitely a chill. People are scared. There are some columnists, not many but some, who are publicly critical of the (Israel Defense Force) expressing pro Palestinian views,” said Amber*, a senior reporter in one of Canada’s biggest newsrooms. “There are many more behind the scenes, pitching stories, making suggestions about how more fairness can be inserted into the storytelling process, and those voices are being sidelined.”
Before Oct. 7, CBC News employees were allowed to retweet and share news stories from “credible” sources, as per the national broadcaster’s social media policy. But in a Nov. 24 email to reporters covering the Middle East, editor-in-chief Brodie Fenlon said this would no longer be the case. Under the new policy, employees can only tweet news stories that have first been reported by CBC.
It’s become nearly impossible for journalists to share stories reported from inside Gaza since the national broadcaster doesn’t have much of a presence on the ground. Four sources at the CBC say they’ve been prevented from posting stories by The Guardian, The Washington Post, Al-Jazeera and other outlets reporting on starvation and possible war crimes in Gaza.
A source inside CBC said he felt his bosses are doing their best to navigate a complicated political landscape, but that “self censorship” and a “fear of backlash” is preventing reporters from doing their job.
After CBC reporter Brishti Basu wrote an article about Canadians with pro-Palestinian views facing backlash, the pro-Israel lobby group Honest Reporting organized a letter-writing campaign to have her reprimanded. It was the fourth time they reported on Basu.
Basu’s contract was terminated within the month for “budgetary reasons.” She did not wish to comment but the reporter’s colleagues describe her as a driven, thorough and fair reporter who’s been nominated for provincial and national awards throughout her short career.
In the past week alone, the lobby group has organized similar spamming campaigns against award-winning children’s author Elise Gravel, The Toronto Star’s Shree Paradkar, the student newspaper at Simon Fraser University and a professor at St-Thomas University.
Meanwhile, colleagues of a CBC journalist who works with the Fifth Estate say he’s demonstrated a clear pro-Israel bias but faced no consequences.
After Israel released Palestinian prisoners in exchange for Israeli hostages in November, one senior producer wrote an email to the CBC’s Middle East coverage team, stating the broadcaster shouldn’t show footage of Palestinian families reuniting.
“Palestinian prisoners were detained by the justice system of a country that has rule of law,” the producer wrote, in an email sent to dozens of colleagues. “Those prisoners should not have been let out as the result of an illegal hostage taking.”
In response, the journalist’s superior informs him the email was “inappropriate” but he has not been prevented from working on stories about the conflict. His statement about Palestinian prisoners is also false, according to Amnesty International and other human rights groups.
Palestinians do not enjoy the same legal protections as Israelis since the creation of the state of Israel in 1948 on formerly Palestinian territory. Many of the Palestinian detainees are children and some have been held for years without a trial.
“As you know, everything we put to air or publish online must meet our journalistic standards of accuracy, impartiality, balance and fairness,” said CBC spokesperson Chuck Thompson, in a statement sent to The Rover. “We're held accountable through an independent ombudsman.”
Instances of censorship are also affecting freelancers like Rob Rousseau, who was one of a handful of journalists purged from X two weeks ago. Rousseau, a Montrealer who broadcasts his daily show on Twitch, saw his account suspended alongside The Intercept journalist Ken Klippenstein and Texas Observer’s Steven Monacelli. Though engagement on the social media site has dropped significantly since it was acquired by Elon Musk, X is a significant driver of traffic and income for Rousseau.
“I woke up that morning, I noticed that my account had been suspended and there was no reason as to why,” Rousseau told The Rover. “Just kind of a vague message about violating the rules. They didn’t show me a tweet or anything specific, there was no actual explanation for it. I’ve been talking a lot about Israel for the last couple of months. I've been critical of the IDF, so I think it had to do with that.”
In public statements, Klippenstein and Moncelli have said they also believe they were suspended for their criticism of Israel and Musk, who aligned himself with the Israeli government in late November after he was taken to task for endorsing an antisemitic conspiracy theory.
Rousseau, Klippenstein and Monacelli’s accounts were reinstated after a sustained outcry on X.
Steven Zhou, a spokesperson for the National Council of Canadian Muslims, says backlash against Muslim supporters of Palestine has been “excessive and frightening.”
“There was a boy suspended from elementary school for saying the words ‘Free Palestine,’” said Zhou. “We’ve had reports of people losing their job for opposing the war and we’ve fielded hundreds of complaints since Oct. 7. The backlash is real.”
Every morning, when she opens her email, Katelyn* comes across a picture of a dead Palestinian child.
The images are disturbing. She says they depict children missing limbs, toddlers lying dead in the street or on stretchers, covered in a pall of dust and blood.
“I’ve had 74 photos sent to me just today,” said Katelyn, who did not want her real name published for fear of more backlash. “It’s traumatizing.”
Katelyn is a staffer for a Member of Parliament who has been one of Israel's most avid supporters throughout the war. She says she’s been shouted down in public, and called a “fat genocidal bitch” while walking into her boss’s office.
The first Friday after Oct. 7, Avishai Infeld was about to leave for Shabbat dinner in downtown Montreal when police informed him they had reason to fear for his safety. Infeld was inside the building of an organization that supports the war when police informed them they would need to be escorted to Shabbat.
Infeld says an officer told his group that a number of factors — Hamas had called on supporters to participate in a “day of rage,” which coincided with pro-Palestinian rallies across the globe — led police to take the precautionary measure.
That same day, in Illinois, a 71 year-old white American landlord killed his tenant, a 6 year-old Palestinian child named Wadea Al Fayoume, by stabbing Fayoume 26 times because “he was concerned about the national day of Jihad that was supposed to occur.” Fayoume was killed in front of his mother, who also sustained life-threatening injuries.
“It’s sad that it came to that, needing police protection,” Infeld said. “I never thought we would.”
One downtown business owner told The Rover that, during a series of pro-Palestinian rallies late last year, he felt a group of protesters were trying to intimidate him because they believed he supports Israel’s war on Gaza.
“This guy told me he’d looked me up on social media and saw that I retweeted a post condemning the Oct. 7 attacks,” the business owner said. “It wasn’t pro-war, it was literally just a message condemning the attacks. So the guy said if I didn’t delete the tweet, he would keep coming back to my business with his friends and refuse to leave. I don’t know what to call that except intimidation.”
Liberal MP Anthony Housefather told The Rover he has dealt with hundreds of hateful messages online and in his inbox while publicly being called “a Nazi” and a supporter of genocide. Last month, a group of activists postered the entrance of Housefather’s Mount Royal riding office with signs that read “Trudeau complicit in the deaths of over 20,000 Palestinians” and “Sanction Israel, End the Siege of Gaza.”
Zhou says he’s worried that well-intentioned, otherwise reasonable people are succumbing to their worst impulses on social media.
“Regardless of where you find yourself in this debate, there’s been a tendency to attack first and ask questions later,” said Zhou.
Zhou was "shocked" on Jan. 1, when Liberal MP Marco Mendicino shared a tweet by Meir Weinstein — a controversial activist who recently called on Canadians to arm themselves, “learn to fight and learn to shoot,” when asked how people should prepare for the arrival of Palestinian refugees in Canada.
Weinstein is the former president of the Jewish Defence League’s Canadian chapter. The JDL is considered a right-wing terrorist group by the Federal Bureau of Investigation. Mendicino was Canada’s Public Safety Minister before he was booted from his post in a cabinet shuffle last summer.
“We asked Mr. Mendicino to take the tweet down, we told him, ‘This is a person who’s called on violence against any potential Gazan refugees in Canada. You shouldn’t be retweeting him,’” Zhou said. “It’s not entirely clear to me why he thought it was a good idea to go down that route.”
***
The incident at Hall Building occurred during J’s first semester at Concordia, an event which completely sidelined the remaining semester for them.
“You know, I was born here and then lived in Vancouver for most of my life,” J said. “So moving back here was a really big thing for me and it’s just felt so isolating.”
J struggled to keep up with their studies. They didn’t leave the apartment for two weeks, and when they returned to campus, it was hard to focus. Finals week was impossible to keep up with on top of the stress from the doxxing campaign. All this while J was already living with Complex Post-Traumatic Stress Disorder from the two sexual assaults they lived through.
“I feel like I’ve retreated into myself a lot and kind of just been hermiting, and trying to make time go by as quickly as possible,” J said.
J returned to Concordia for the winter semester riddled with anxiety. It was hard enough, they said, walking around campus worried someone would physically or verbally attack them if they were to be recognized from the viral video. But none of it measured up to the email they received not even a week into the semester, with news that Concordia was putting them on a tribunal for allegedly making campus unsafe.
“It’s exhausting. It’s aggravating. It’s depressing,” J said. “And it feels unjust. Targeted.”
J’s tribunal is currently anticipated to take place around late summer. They’ll be requesting that Concordia settle the matter outside of the tribunal, in hopes that their academic career won’t be impacted more than it already has been. Until then, they’re taking it one day at a time.
“I have a handful of people that I feel close [to] and can confide in and feel safe around,” J said. “So as long as I have that, it makes it all a bit easier to manage.”
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https://www.goldmoney.com/research/g...5SzSdC8M9EvKgs
Gibson's Paradox
Aug 2, 2015·Alasdair Macleod
Gibson's paradox has defeated all the mainstream economists who have tried to resolve it, including Irving Fisher, John Maynard Keynes and Milton Friedman.
As Keynes noted, the paradox is that the price level and the nominal interest rate were positively correlated in the two centuries before he examined it in 1930.
Monetary theory posits the correlation should be between changes in the level of price inflation and interest rates. Empirical evidence shows there is no such correlation. The response from the Neo-Keynesian and monetarist schools has been to ignore Gibson's paradox instead of resolving it, so much so that few economics professors are aware of its existence today.
This paper explains the paradox in sound theoretical terms, and casts doubt on the assumptions behind the quantity theory of money, with important implications for monetary policy.
INTRODUCTION
Thomas Tooke in 1844 is generally thought to be the first to observe that the price level and nominal interest rates were positively correlated. It was Keynes who christened it Gibson's paradox after Alfred Gibson, a British economist who wrote about the correlation in 1923 in an article for Banker's Magazine. Keynes called it a paradox in 1930, because there was no satisfactory explanation for it. He wrote that "the price level and the nominal interest rate were positively correlated over long periods of economic history".1 Irving Fisher similarly had difficulties with it: "no problem in economics has been more hotly debated,"2 and even Milton Friedman was defeated: "The Gibson paradox remains an empirical phenomenon without a theoretical explanation".3 Others also attempted to resolve it, from Knut Wicksel4 to Barsky & Summers.5
Monetary theory would suggest the correlation should have been between changes in the level of price inflation and interest rates. This is the basis upon which central banks determine monetary policy, and now that the gold standard no longer exists, it is probably assumed by those that have looked at the paradox that it is no longer relevant. This appears to be a reasonable explanation for today's lack of interest in the subject, with many professional economists unaware of it.
Those economists who have examined the paradox generally agree that it existed. This paper will not go over their old ground other than to make a few pertinent observations:
• Data over the period covered, other than prices for British Government Consols cannot be deemed wholly reliable for two
reasons. Firstly, price data from 1730 to 1930, the period observed, cannot be rigorous; and secondly any observations of price levels by their nature must be selective and subjective as to their composition.
• Attempts to construct a theory to explain the paradox after the Second World War differ from earlier attempts, because the more recent academic consensus dismisses Say's Law, otherwise known as the law of the markets. Barsky & Summers in particular resort to mathematical explanations as part of their paper, thereby treating it as a problem of natural science and not a social science.
• The economists who have tackled the problem were unaware of the Austrian School's price and time-preference theories, or have dismissed them in favour of Neo-Keynesian and monetary economics. The silence of the Austrian School on the subject is an apparent anomaly.
The Author shows that the theoretical reasoning of the Austrian School leads to a satisfactory resolution of the paradox without having recourse to questionable statistics or mathematical method.
THE PARADOX
Gibson's paradox is based on the long-run empirical evidence between 1730 and 1930, a period of 200 years, when it was observed by Arthur Gibson that changes in the level of the yield on British Government Consols 2 ½% Stock positively correlated with the wholesale price level. No satisfactory theoretical explanation for this correlation has yet been published. It is shown in Chart 1 (Note: annual price data estimates from the Office for National Statistics are only available from 1750).
https://gm-media-library.s3.eu-west-...3a92f340f3.png
The quantity theory of money suggests that instead there should be a strong correlation between changes in interest rates and the rate of price inflation. However there is no discernible correlation between the two. Contrast Chart 2 below with Chart 1 above.
https://gm-media-library.s3.eu-west-...da048d1683.png
If Gibson's paradox is still relevant it presents a potential challenge to monetary policy. The question arises as to whether it is solely an empirical phenomenon of metallic, or sound money, or whether its validity persists to this day, hidden from us by the expansion of fiat currency and bank credit, and the central banks' success in substituting pure fiat currency in place of sound money. If the paradox is solely a consequence of metallic, or sound money, it might pose no threat to the modern currency system; otherwise it may have profound implications.
Modern macroeconomists appear ill-equipped to tackle this issue. The paradox is essentially a market phenomenon and macroeconomics is at odds with markets. An economist who favours macroeconomic theory will acknowledge a primary function of the state is to intervene in markets for a better outcome than a policy of laissez-faire; and that the needs and wants, the purposeful actions of ordinary people, collectively through markets free of exogenous factors, can be improved by government intervention. Yet it is ordinary people and their businesses that were behind the relationship between the interest rate on gold or gold substitutes and wholesale prices during the period the paradox was observed. For this reason an approach to the problem that is consistent with Say's law and denies the validity of conventional neo-classical economic theory is more likely to resolve the paradox.
WHY SAY'S LAW IS IMPORTANT
Say's law describes the fundamental framework within which markets work. By implication it holds that each one of us produces a good or service so that we can buy the goods and services we want: 6 we produce to consume so we are both producers and consumers. Put another way, we cannot acquire the wide range of things we need or want without providing our labour and specialist skills for profit, the profit we require to sustain ourselves. Furthermore, we may choose to defer some of this consumption for future use when it is surplus to our immediate needs. Deferred consumption is saving, the accumulation of wealth, which is either redeployed by the individual to maximise his own productive capacity, or made available to other individuals to enhance their skills for a return. The medium that facilitates all these activities is money, which effectively represents stored labour. It stands to reason that the money used has to be acceptable to all parties.
The primary purpose of money as a transaction medium is to enable all goods and services to be priced, thereby removing the inefficiencies of bartering. Money enables a buyer to compare the cost and benefits of one item against another, and for producers to compete and provide what consumers most want. The forum for this competition is the market, a term for an intangible entity, which facilitates the exchange of goods and services between producers and consumers. Consumers decide how they wish to allocate the fruits of their labour, and it is up to producers to anticipate and respond to these decisions. If someone is not productive and has no savings in order to consume and survive, he or she will require a subsidy, such as welfare or charity, provided from the surplus of other producers. Despite the flexibility money provides these human actions, they cannot be separated.
Therefore everyone is both a producer and consumer, or if unemployed, indirectly so. And it is the individual decision of the consumer what proportion of his production profit to put aside, or save for the future. Say's law describes economic reality, and was generally recognised as the fundamental law of economics until about 1930. But it was an inconvenient truth for some thinkers in the late nineteenth century, most notably for Karl Marx, who advocated state ownership of the means of production, and the national socialists of the early twentieth century who advocated state control of production through regulation. Both socialism and fascism were attempts by the state to subvert the free market process that allowed producers to have the freedom to respond to consumer demands, so both creeds contravened Say's law. Finally, Keynes began in the 1930s to work up a proposition to separate production from consumption and to dismantle the relationship between current and deferred consumption, which culminated in his General Theory, published in 1936.6
Keynes's influence on modern economics is fundamental to today's macroeconomic theories and has led to a widespread academic denial of Say's law. Modern academics, including Keynes himself, were therefore unsympathetic with the theoretical framework required to address the paradox, if only on the basis that it was commonly accepted over the period being considered. It is also an anomaly that the subject seems to have escaped the attention of London-based economists of the Austrian School, such as Robbins and Hayek for whom Say's law remained a fundamental basis of economic theory.
THE FINANCIAL AND ECONOMIC BACKGROUND TO 1730-1930
Gibson's paradox was recorded in Britain, so we must first examine the social and economic conditions that pertained in order to understand the circumstances behind the paradox, and to eliminate the possibility it was the result of circumstances rather than evidence of sound theory yet to be explained.
The increase in the above-ground stock of gold, which was the foundation of money and all money substitutes for much of the time, was a potential factor over the period observed. Uses for gold included jewellery and other adornments as well as money mostly in the form of coin, so it is not possible to establish accurately the money quantity. The observation was of British prices and bond yields, so it is the quantity of gold in circulation as money in Britain which matters, though there is the secondary consideration of gold in circulation in the hands of Britain's trading partners. During the whole period with the exception of the 8 disruption caused by the Napoleonic wars, the quantity of gold was regulated between Britain and her trading partners solely by the demands of trade. Given the low level of peacetime intervention by governments in free markets at that time, differences in prices between countries were arbitraged through gold movements. We can therefore reasonably take the global quantity of aboveground gold stocks as indicative of the quantity of money in circulation regulated only by the market's requirements; though bank credit or the over-issue of unbacked money became an increasing cyclical factor following the Bank Charter Act of 1844.
Prior to the Napoleonic Wars, Britain began to build herself into the most powerful trading economy in history, aided by her overseas possessions and influence, together with the declining influence of Spain after the War of the Spanish Succession. The development of trade with India in the eighteenth century will have increased British demand for gold. The wars against France following the French Revolution were costly both socially, involving nearly half a million men in the army and navy, and financially leading to a drain on gold reserves. Prices rose, driven by the increase in unbacked money substitutes issued by the country banks, and by the diversion of financial resources to support the war effort. This led to the suspension of specie payments on demand against bank notes in 1797. By that time the public had become used to accepting bank notes as a valid substitute for gold, so it continued to accept them in lieu of specie.
Following the Napoleonic wars, the economy had to adjust to peacetime. The Bullion Committee, which had been formed in 1810, recommended a resumption of specie payments to address the problem of rising prices, a recommendation rejected by the government. It was not until 1819, when the war had been over for four years that a second committee under the chairmanship of Robert Peel again recommended a return to specie payments, and from 1821 onwards a gradual resumption of cash payments for banknotes resumed.
The over-issue of notes by the banks during the Napoleonic wars led to the failure of eighty country banks in 1825. This was followed by two Acts of Parliament: in 1826 restricting the Bank of England's monopoly to a radius sixty-five miles from London but permitting it to compete with branches in the provincial towns; and in 1833 withdrawing the Bank of England's monopoly altogether. Banks were then free as a consequence to expand from single-office operations into branch networks through a process of expansion and mergers. The foundation of today's British banks dates from this time.
During this period the debate about the future of money and banking intensified, with the banking school arguing that banks should be free to issue notes as they saw fit, so long as they were prepared to meet all demands for encashment into specie. The currency school argued instead for bank note issues to be tied strictly to specie held in reserves. The controversy between these two schools ended with the Bank Charter Act of 1844, which required the Bank of England to back its note issue with gold, with the exception of £14,000,000 of unbacked notes already in circulation. The intention was for Bank of England notes to gradually replace those issued by other banks in England and Wales (Scottish banks still issue their own notes to this day).
Thus it was that the Bank Charter Act of 1844 sided with the currency school, so far as the note issue was concerned; but by neglecting the issuance of credit, modern fractional reserve banking was born.
It can be seen that Gibson's paradox had to survive substantial variations of economic and monetary conditions likely to disrupt any correlation between the level of wholesale prices and interest rates. If there was a common factor over the two centuries, it was that the domestic UK economy expanded rapidly, facilitated initially by a developing network of canals, which in addition to river and sea navigation enabled the transport of goods throughout the country for the first time. As the industrial revolution progressed, the new science of thermodynamics led to the development of steam power, fuelled by coal which was found and mined in abundance. The mechanisation of factories and mills together with the subsequent development of railways rapidly increased both productivity and the speed of transport and communications. Her position as an important global power gave Britain access to raw materials and overseas markets to fuel economic and technological progress. Britain was so successful that before the First World War eighty per cent of all shipping afloat at that time had been built in Britain. Finally, in the post-war decade to 1930 Britain underwent massive social and political changes, which were generally destructive to the accumulated wealth of the previous century.
GOLD SUPPLY
Without an increase in the quantities of gold available the expansion of economic activity brought about by the industrial revolution would have been expected to lead to a trend of falling prices. As it was, new mines were discovered, notably in California, the Klondike, South and West Africa, and Australia. By 1730 the estimated aboveground stocks accumulated through history were about 2,400 tonnes, and by 1930 they had increased to 33,000 tonnes.7 Britain's population increased from roughly seven million to forty-five million. In other words, the quantity of gold available for money increased at roughly double the rate of the British population over the two centuries.
Other things being equal, the net monetary effect from the increase in the quantity of above-ground gold stocks can be expected to reduce its purchasing power relative to goods; but it is an historical fact that the rapid industrialisation over the period raised the standard of living and life expectancy for the average person considerably, thereby offsetting the inflationary price effects of increased above-ground stocks, so much so that prices appear to have fallen by 20% between 1820 and 1900 according to the ONS figures used in Chart 1.
THE QUANTITY THEORY OF MONEY
The quantity theory as it is generally understood today dates back to David Ricardo, who ignored the transient effects of changes in the 11 quantity of money on prices in favour of a long-run equilibrium outcome. In 1809 Ricardo took the position that the reason for the increase in prices at that time was due to the Bank of England's over-issue of notes. His interest in this respect glossed over the short-run distortions identified by Cantillon and Hume. In the Ricardian version an increase in the quantity of money would simply result in a corresponding rise in prices.
While this relationship is intuitive, it makes the mistake of dividing money from commodities and putting it into a separate category. An alternative view, consistent with the theories of the Austrian School, is to regard money as a commodity whose special purpose is to act as a fungible medium of exchange, retaining value between exchanges. This being the case, it must be questioned whether or not it is right to put money on one side of an equation and the price level on the other.
This is not to deny that a change in the quantity of money for a given quantity of goods affects prices. That it is likely to do so is consistent with the relationship between the relative quantities of any exchangeable commodities. Furthermore, there is an issue of preferences changing between the relative ownership of one commodity compared with another; in this case between an indexed basket of goods and money. Changes in the general level of cash liquidity can have a disproportionate effect on prices, irrespective of changes in the quantity of money in issue at the time.
By ignoring these considerations it is possible to conclude that changes in the quantity of money in circulation are sufficient to control the price level. It is this assumption that Gibson's paradox challenges. To modern macroeconomists the price of money is its rate of interest, though to followers of the Austrian school, this is a gross error. To them, the price of money is not the rate of interest, but the reciprocal of the price of a good bought or sold with it. Furthermore, under this logic money has several prices for each good or service, which will differ between different buyers and sellers depending on all the circumstances specific to a transaction. This is consistent with the Austrian school's observation that prices are 12 entirely subjective and they cannot be determined by formula.
Macroeconomics does not recognise this approach, and averages prices to arrive at an indexed price level. Austrian school economists argue that mathematical methods are wholly inappropriate applied to the real world. Apples cannot be averaged with gin, nor can gin be averaged even with another brand of gin. Averaging the money-values of different products cannot escape this reality.
The rate of interest on money is its time-preference; and again, depending on what the money is intended to be exchanged for its time-preference must match inversely that of the individual good. In other words, by deferring the delivery of a good and paying for it up-front it should be possible to acquire it at a discount. There is the possession of the money foregone, the uncertainty of the contract being fulfilled and the scarcity of the good, which all combine into a time-preference for a particular deferred transaction.
The quantity theory of money ignores this temporal element in the exchange of money for goods. In doing so, it fails to account for the fact that in free markets demand for money, reflected in its time-preference, must correlate with demand for goods.
The quantity theory, by putting money on one side of an equation and goods on another suggests the relationship is otherwise. This gives us an insight into why the quantity theory of money is flawed, and when we explore the Gibsonian relationship between interest rates and the price level it will become obvious why interest rates do not correlate with the rate of price inflation.
THE SOLUTION TO GIBSON'S PARADOX
In the discussion covering the flaws in the quantity theory of money in the previous section clues were given as to how the paradox might be resolved. The starting point is to recognise that money is simply a commodity, albeit with a special function, to act as the temporary store of labour between production and consumption.
We can see that including money, commodities necessary for human progress were in demand during a period of unprecedented economic expansion over the two centuries between 1730 and 1930. In some cases, such as in exchange for harvested grains, the price of gold would have varied from season to season, often wildly. But with all the individual goods, there will have been a match with their time-preferences between manufactured goods and gold and gold substitutes. Therefore, the interest rate on money offered by banks is the other side of the time-preferences of the goods produced by their borrowers, who were predominantly manufacturers and merchants seeking trade finance.
The reason interest rates are set by the demands for money by manufacturers is they have to expend capital in order to produce. Capital becomes one of two essential elements of the price of a future good, the other essential being profit. The capital value of an asset used in production is the sum of the value of output it generates discounted to its present value. If prices of goods are rising, the producer can increase his time-preference in the expectation of higher end-prices for his production. Alternatively, if prices are not rising, or even falling he is limited in his time-preference.
This explains why when prices generally rose, bond yields, as proxy for term interest rates paid by borrowers, also rose. Equally, when prices fell, a producer was less able to bid up his time preferences, so term interest rates fell. In other words, before central banks took upon themselves to control interest rates, interest rates simply correlated to demand for capital from producers.
This analysis of the relationship between prices is wholly in accordance with Carl Menger's insight, that a price only exists for commodities and goods for which supply is limited to less than potential demand.8
POST-1930
After 1930 the paradox was still observed until the 1970s, when the relationship appeared to break down.
https://gm-media-library.s3.eu-west-...febdab1363.png
In the 1970s price inflation according to the ONS accelerated from 5.4% in 1969, to 17.1% in 1974. During that time the Bank of England only increased interest rates under pressure from the markets. Interest rate policy fed a growing preference for hoarding goods and reducing personal cash balances. In this case, the correlation between bond yields and the price level reflected a shift in public confidence in the future purchasing power of the currency, which drove the time-preferences in the market, instead of widespread demand for capital investment.
Bond yields topped out in autumn 1974 before declining; but interest rates finally peaked in 1979/80. This is not fully reflected in the bond yield shown in Chart 4, because the yield curve was sharply negative at that time.
Since that tumultuous decade correlation ceased, and the Bank of England appears to have gained control over interest rates from markets.
It is hardly surprising that when central banks implement monetary policies to ensure that the price level never falls, the normal relationship between the price level and interest rates is interrupted. The relationship between savers and investing producers, which is the basis of the Gibson observation, becomes impaired.
CONCLUSION
The following question was raised earlier in this paper:
If Gibson's paradox is still relevant it presents a potential challenge to monetary policy. The question arises as to whether it is solely an empirical phenomenon of metallic, or sound money, or whether its validity persists to this day, hidden from us by the expansion of fiat currency and bank credit, and the central banks' success in substituting pure fiat currency in place of sound money. If the Paradox is solely a consequence of metallic or sound money it might pose no threat to the modern currency system; otherwise it may have profound implications.
It is clear that the difference between markets historically and those of today is that interest rates were set by the demand for savings to invest in production, while today they are set by monetary policy. Monetary policy is not consistent with the basic function of interest rates, which is to reflect a market rate between savers and borrowers to balance supply and demand. Instead, monetarists believe otherwise, that interest rates can be used to regulate the quantity of money.
Gibson's paradox is not dependent on metallic or sound money so much as it is dependent on free markets distributing savings in accordance with demand from borrowers investing in their businesses. We must therefore conclude that monetary policies intended to suppress this effect do have profound implications.
Keynes in his General Theory in 1936 wrote the following in his concluding notes:
"I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution."9
The long, slow euthanasia of Keynes's rentier class is what has changed. Businesses obtain the funds for investment from other sources directed by the financial system. Savers are channelled increasingly into stock markets, where they participate in businesses as co-owners, instead of lending to them indirectly through the banking system. The banks provide working capital, mainly through the expansion of bank credit, at rates primarily determined not by supply and demand for savings, but set by central banks.
Central banks' insistence on monetary solutions to economic problems have not only buried the Say's law relationship between savers and investing entrepreneurs, they have turned the principal objective of entrepreneurs from patient wealth creation through the accumulation of profits into ephemeral wealth creation through the accumulation of debt. They have been caught up in a credit cycle created by central banks and are no longer borrowing genuine savings from savers who expect to be repaid. If Gibson's paradox had been satisfactorily explained by Tooke or Gibson, the assumptions behind the quantity theory of money and its derivatives would have been thrown into doubt before they became central to monetary policy.
This is a dramatic claim perhaps, but it might have demolished the suppositions behind the quantity theory of money, which became Fisher's equation of exchange, and the brand of monetarism followed by the Chicago school under Milton Friedman. Misleading ideas, such as velocity of circulation in the equation of exchange would have not been taken as meaningful economic indicators. As it is Gibson's paradox is unknown to the majority of economists today, who assume the quantity theory of money is unchallengeable.
So, to put the explanation of Gibson's paradox at its simplest,
If the prices of goods are expected to rise, then their time preferences are bound to increase, and if they are expected to fall, their time preferences are bound to fall. That is why interest rates correlate with the price level.
Click here to view the entire Whitepaper as a PDF...
1 J M KEYNES, A TREATISE ON MONEY, VOL.2 P.1981930
2 IRVING FISHER, THE THEORY OF INTEREST, 1930.
3 FRIEDMAN AND SCHWARTZ, FROM GIBSON TO FISHER, EXPLORATIONS IN ECONOMIC RESEARCH NBER VOL. 3,2 (SPRING)
4 KNUT WICKSEL, INTEREST AND PRICES, 1936, TRANSLATED FROM THE GERMAN, GELDZINS UND GUTERPREISER, 1898.
5 NBER WORKING PAPER SERIES NO. 1680 GIBSON'S PARADOX AND THE GOLD STANDARD, 1985.
6 J M KEYNES, THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY, 1936.
7 JAMES TURK, THE ABOVEGROUND GOLD STOCK: ITS IMPORTANCE AND ITS SIZE SEPT 2012 HTTPS://WWW.GOLDMONEY.COM/IMAGES/MED...DGOLDSTOCK.PDF (ACCESSED JULY 2015)
8 CARL MENGER: GRUNDSÄTZE DER VOLKSWIRTSCHAFTSLEHRE (PRINCIPLES OF ECONOMICS)1871.
9 JM KEYNES: THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY PP 376 OF THE 1936 EDITION.
The views and opinions expressed in this article are those of the author(s) and do not reflect those of GoldMoney, unless expressly stated. The article is for general information purposes only and does not constitute either GoldMoney or the author(s) providing you with legal, financial, tax, investment, or accounting advice. You should not act or rely on any information contained in the article without first seeking independent professional advice. Care has been taken to ensure that the information in the article is reliable; however, GoldMoney does not represent that it is accurate, complete, up-to-date and/or to be taken as an indication of future results and it should not be relied upon as such. GoldMoney will not be held responsible for any claim, loss, damage, or inconvenience caused as a result of any information or opinion contained in this article and any action taken as a result of the opinions and information contained in this article is at your own risk.
Copyright 2024 Goldmoney Inc. All rights reserved.
Gibson's Paradox
Aug 2, 2015·Alasdair Macleod
Gibson's paradox has defeated all the mainstream economists who have tried to resolve it, including Irving Fisher, John Maynard Keynes and Milton Friedman.
As Keynes noted, the paradox is that the price level and the nominal interest rate were positively correlated in the two centuries before he examined it in 1930.
Monetary theory posits the correlation should be between changes in the level of price inflation and interest rates. Empirical evidence shows there is no such correlation. The response from the Neo-Keynesian and monetarist schools has been to ignore Gibson's paradox instead of resolving it, so much so that few economics professors are aware of its existence today.
This paper explains the paradox in sound theoretical terms, and casts doubt on the assumptions behind the quantity theory of money, with important implications for monetary policy.
INTRODUCTION
Thomas Tooke in 1844 is generally thought to be the first to observe that the price level and nominal interest rates were positively correlated. It was Keynes who christened it Gibson's paradox after Alfred Gibson, a British economist who wrote about the correlation in 1923 in an article for Banker's Magazine. Keynes called it a paradox in 1930, because there was no satisfactory explanation for it. He wrote that "the price level and the nominal interest rate were positively correlated over long periods of economic history".1 Irving Fisher similarly had difficulties with it: "no problem in economics has been more hotly debated,"2 and even Milton Friedman was defeated: "The Gibson paradox remains an empirical phenomenon without a theoretical explanation".3 Others also attempted to resolve it, from Knut Wicksel4 to Barsky & Summers.5
Monetary theory would suggest the correlation should have been between changes in the level of price inflation and interest rates. This is the basis upon which central banks determine monetary policy, and now that the gold standard no longer exists, it is probably assumed by those that have looked at the paradox that it is no longer relevant. This appears to be a reasonable explanation for today's lack of interest in the subject, with many professional economists unaware of it.
Those economists who have examined the paradox generally agree that it existed. This paper will not go over their old ground other than to make a few pertinent observations:
• Data over the period covered, other than prices for British Government Consols cannot be deemed wholly reliable for two
reasons. Firstly, price data from 1730 to 1930, the period observed, cannot be rigorous; and secondly any observations of price levels by their nature must be selective and subjective as to their composition.
• Attempts to construct a theory to explain the paradox after the Second World War differ from earlier attempts, because the more recent academic consensus dismisses Say's Law, otherwise known as the law of the markets. Barsky & Summers in particular resort to mathematical explanations as part of their paper, thereby treating it as a problem of natural science and not a social science.
• The economists who have tackled the problem were unaware of the Austrian School's price and time-preference theories, or have dismissed them in favour of Neo-Keynesian and monetary economics. The silence of the Austrian School on the subject is an apparent anomaly.
The Author shows that the theoretical reasoning of the Austrian School leads to a satisfactory resolution of the paradox without having recourse to questionable statistics or mathematical method.
THE PARADOX
Gibson's paradox is based on the long-run empirical evidence between 1730 and 1930, a period of 200 years, when it was observed by Arthur Gibson that changes in the level of the yield on British Government Consols 2 ½% Stock positively correlated with the wholesale price level. No satisfactory theoretical explanation for this correlation has yet been published. It is shown in Chart 1 (Note: annual price data estimates from the Office for National Statistics are only available from 1750).
https://gm-media-library.s3.eu-west-...3a92f340f3.png
The quantity theory of money suggests that instead there should be a strong correlation between changes in interest rates and the rate of price inflation. However there is no discernible correlation between the two. Contrast Chart 2 below with Chart 1 above.
https://gm-media-library.s3.eu-west-...da048d1683.png
If Gibson's paradox is still relevant it presents a potential challenge to monetary policy. The question arises as to whether it is solely an empirical phenomenon of metallic, or sound money, or whether its validity persists to this day, hidden from us by the expansion of fiat currency and bank credit, and the central banks' success in substituting pure fiat currency in place of sound money. If the paradox is solely a consequence of metallic, or sound money, it might pose no threat to the modern currency system; otherwise it may have profound implications.
Modern macroeconomists appear ill-equipped to tackle this issue. The paradox is essentially a market phenomenon and macroeconomics is at odds with markets. An economist who favours macroeconomic theory will acknowledge a primary function of the state is to intervene in markets for a better outcome than a policy of laissez-faire; and that the needs and wants, the purposeful actions of ordinary people, collectively through markets free of exogenous factors, can be improved by government intervention. Yet it is ordinary people and their businesses that were behind the relationship between the interest rate on gold or gold substitutes and wholesale prices during the period the paradox was observed. For this reason an approach to the problem that is consistent with Say's law and denies the validity of conventional neo-classical economic theory is more likely to resolve the paradox.
WHY SAY'S LAW IS IMPORTANT
Say's law describes the fundamental framework within which markets work. By implication it holds that each one of us produces a good or service so that we can buy the goods and services we want: 6 we produce to consume so we are both producers and consumers. Put another way, we cannot acquire the wide range of things we need or want without providing our labour and specialist skills for profit, the profit we require to sustain ourselves. Furthermore, we may choose to defer some of this consumption for future use when it is surplus to our immediate needs. Deferred consumption is saving, the accumulation of wealth, which is either redeployed by the individual to maximise his own productive capacity, or made available to other individuals to enhance their skills for a return. The medium that facilitates all these activities is money, which effectively represents stored labour. It stands to reason that the money used has to be acceptable to all parties.
The primary purpose of money as a transaction medium is to enable all goods and services to be priced, thereby removing the inefficiencies of bartering. Money enables a buyer to compare the cost and benefits of one item against another, and for producers to compete and provide what consumers most want. The forum for this competition is the market, a term for an intangible entity, which facilitates the exchange of goods and services between producers and consumers. Consumers decide how they wish to allocate the fruits of their labour, and it is up to producers to anticipate and respond to these decisions. If someone is not productive and has no savings in order to consume and survive, he or she will require a subsidy, such as welfare or charity, provided from the surplus of other producers. Despite the flexibility money provides these human actions, they cannot be separated.
Therefore everyone is both a producer and consumer, or if unemployed, indirectly so. And it is the individual decision of the consumer what proportion of his production profit to put aside, or save for the future. Say's law describes economic reality, and was generally recognised as the fundamental law of economics until about 1930. But it was an inconvenient truth for some thinkers in the late nineteenth century, most notably for Karl Marx, who advocated state ownership of the means of production, and the national socialists of the early twentieth century who advocated state control of production through regulation. Both socialism and fascism were attempts by the state to subvert the free market process that allowed producers to have the freedom to respond to consumer demands, so both creeds contravened Say's law. Finally, Keynes began in the 1930s to work up a proposition to separate production from consumption and to dismantle the relationship between current and deferred consumption, which culminated in his General Theory, published in 1936.6
Keynes's influence on modern economics is fundamental to today's macroeconomic theories and has led to a widespread academic denial of Say's law. Modern academics, including Keynes himself, were therefore unsympathetic with the theoretical framework required to address the paradox, if only on the basis that it was commonly accepted over the period being considered. It is also an anomaly that the subject seems to have escaped the attention of London-based economists of the Austrian School, such as Robbins and Hayek for whom Say's law remained a fundamental basis of economic theory.
THE FINANCIAL AND ECONOMIC BACKGROUND TO 1730-1930
Gibson's paradox was recorded in Britain, so we must first examine the social and economic conditions that pertained in order to understand the circumstances behind the paradox, and to eliminate the possibility it was the result of circumstances rather than evidence of sound theory yet to be explained.
The increase in the above-ground stock of gold, which was the foundation of money and all money substitutes for much of the time, was a potential factor over the period observed. Uses for gold included jewellery and other adornments as well as money mostly in the form of coin, so it is not possible to establish accurately the money quantity. The observation was of British prices and bond yields, so it is the quantity of gold in circulation as money in Britain which matters, though there is the secondary consideration of gold in circulation in the hands of Britain's trading partners. During the whole period with the exception of the 8 disruption caused by the Napoleonic wars, the quantity of gold was regulated between Britain and her trading partners solely by the demands of trade. Given the low level of peacetime intervention by governments in free markets at that time, differences in prices between countries were arbitraged through gold movements. We can therefore reasonably take the global quantity of aboveground gold stocks as indicative of the quantity of money in circulation regulated only by the market's requirements; though bank credit or the over-issue of unbacked money became an increasing cyclical factor following the Bank Charter Act of 1844.
Prior to the Napoleonic Wars, Britain began to build herself into the most powerful trading economy in history, aided by her overseas possessions and influence, together with the declining influence of Spain after the War of the Spanish Succession. The development of trade with India in the eighteenth century will have increased British demand for gold. The wars against France following the French Revolution were costly both socially, involving nearly half a million men in the army and navy, and financially leading to a drain on gold reserves. Prices rose, driven by the increase in unbacked money substitutes issued by the country banks, and by the diversion of financial resources to support the war effort. This led to the suspension of specie payments on demand against bank notes in 1797. By that time the public had become used to accepting bank notes as a valid substitute for gold, so it continued to accept them in lieu of specie.
Following the Napoleonic wars, the economy had to adjust to peacetime. The Bullion Committee, which had been formed in 1810, recommended a resumption of specie payments to address the problem of rising prices, a recommendation rejected by the government. It was not until 1819, when the war had been over for four years that a second committee under the chairmanship of Robert Peel again recommended a return to specie payments, and from 1821 onwards a gradual resumption of cash payments for banknotes resumed.
The over-issue of notes by the banks during the Napoleonic wars led to the failure of eighty country banks in 1825. This was followed by two Acts of Parliament: in 1826 restricting the Bank of England's monopoly to a radius sixty-five miles from London but permitting it to compete with branches in the provincial towns; and in 1833 withdrawing the Bank of England's monopoly altogether. Banks were then free as a consequence to expand from single-office operations into branch networks through a process of expansion and mergers. The foundation of today's British banks dates from this time.
During this period the debate about the future of money and banking intensified, with the banking school arguing that banks should be free to issue notes as they saw fit, so long as they were prepared to meet all demands for encashment into specie. The currency school argued instead for bank note issues to be tied strictly to specie held in reserves. The controversy between these two schools ended with the Bank Charter Act of 1844, which required the Bank of England to back its note issue with gold, with the exception of £14,000,000 of unbacked notes already in circulation. The intention was for Bank of England notes to gradually replace those issued by other banks in England and Wales (Scottish banks still issue their own notes to this day).
Thus it was that the Bank Charter Act of 1844 sided with the currency school, so far as the note issue was concerned; but by neglecting the issuance of credit, modern fractional reserve banking was born.
It can be seen that Gibson's paradox had to survive substantial variations of economic and monetary conditions likely to disrupt any correlation between the level of wholesale prices and interest rates. If there was a common factor over the two centuries, it was that the domestic UK economy expanded rapidly, facilitated initially by a developing network of canals, which in addition to river and sea navigation enabled the transport of goods throughout the country for the first time. As the industrial revolution progressed, the new science of thermodynamics led to the development of steam power, fuelled by coal which was found and mined in abundance. The mechanisation of factories and mills together with the subsequent development of railways rapidly increased both productivity and the speed of transport and communications. Her position as an important global power gave Britain access to raw materials and overseas markets to fuel economic and technological progress. Britain was so successful that before the First World War eighty per cent of all shipping afloat at that time had been built in Britain. Finally, in the post-war decade to 1930 Britain underwent massive social and political changes, which were generally destructive to the accumulated wealth of the previous century.
GOLD SUPPLY
Without an increase in the quantities of gold available the expansion of economic activity brought about by the industrial revolution would have been expected to lead to a trend of falling prices. As it was, new mines were discovered, notably in California, the Klondike, South and West Africa, and Australia. By 1730 the estimated aboveground stocks accumulated through history were about 2,400 tonnes, and by 1930 they had increased to 33,000 tonnes.7 Britain's population increased from roughly seven million to forty-five million. In other words, the quantity of gold available for money increased at roughly double the rate of the British population over the two centuries.
Other things being equal, the net monetary effect from the increase in the quantity of above-ground gold stocks can be expected to reduce its purchasing power relative to goods; but it is an historical fact that the rapid industrialisation over the period raised the standard of living and life expectancy for the average person considerably, thereby offsetting the inflationary price effects of increased above-ground stocks, so much so that prices appear to have fallen by 20% between 1820 and 1900 according to the ONS figures used in Chart 1.
THE QUANTITY THEORY OF MONEY
The quantity theory as it is generally understood today dates back to David Ricardo, who ignored the transient effects of changes in the 11 quantity of money on prices in favour of a long-run equilibrium outcome. In 1809 Ricardo took the position that the reason for the increase in prices at that time was due to the Bank of England's over-issue of notes. His interest in this respect glossed over the short-run distortions identified by Cantillon and Hume. In the Ricardian version an increase in the quantity of money would simply result in a corresponding rise in prices.
While this relationship is intuitive, it makes the mistake of dividing money from commodities and putting it into a separate category. An alternative view, consistent with the theories of the Austrian School, is to regard money as a commodity whose special purpose is to act as a fungible medium of exchange, retaining value between exchanges. This being the case, it must be questioned whether or not it is right to put money on one side of an equation and the price level on the other.
This is not to deny that a change in the quantity of money for a given quantity of goods affects prices. That it is likely to do so is consistent with the relationship between the relative quantities of any exchangeable commodities. Furthermore, there is an issue of preferences changing between the relative ownership of one commodity compared with another; in this case between an indexed basket of goods and money. Changes in the general level of cash liquidity can have a disproportionate effect on prices, irrespective of changes in the quantity of money in issue at the time.
By ignoring these considerations it is possible to conclude that changes in the quantity of money in circulation are sufficient to control the price level. It is this assumption that Gibson's paradox challenges. To modern macroeconomists the price of money is its rate of interest, though to followers of the Austrian school, this is a gross error. To them, the price of money is not the rate of interest, but the reciprocal of the price of a good bought or sold with it. Furthermore, under this logic money has several prices for each good or service, which will differ between different buyers and sellers depending on all the circumstances specific to a transaction. This is consistent with the Austrian school's observation that prices are 12 entirely subjective and they cannot be determined by formula.
Macroeconomics does not recognise this approach, and averages prices to arrive at an indexed price level. Austrian school economists argue that mathematical methods are wholly inappropriate applied to the real world. Apples cannot be averaged with gin, nor can gin be averaged even with another brand of gin. Averaging the money-values of different products cannot escape this reality.
The rate of interest on money is its time-preference; and again, depending on what the money is intended to be exchanged for its time-preference must match inversely that of the individual good. In other words, by deferring the delivery of a good and paying for it up-front it should be possible to acquire it at a discount. There is the possession of the money foregone, the uncertainty of the contract being fulfilled and the scarcity of the good, which all combine into a time-preference for a particular deferred transaction.
The quantity theory of money ignores this temporal element in the exchange of money for goods. In doing so, it fails to account for the fact that in free markets demand for money, reflected in its time-preference, must correlate with demand for goods.
The quantity theory, by putting money on one side of an equation and goods on another suggests the relationship is otherwise. This gives us an insight into why the quantity theory of money is flawed, and when we explore the Gibsonian relationship between interest rates and the price level it will become obvious why interest rates do not correlate with the rate of price inflation.
THE SOLUTION TO GIBSON'S PARADOX
In the discussion covering the flaws in the quantity theory of money in the previous section clues were given as to how the paradox might be resolved. The starting point is to recognise that money is simply a commodity, albeit with a special function, to act as the temporary store of labour between production and consumption.
We can see that including money, commodities necessary for human progress were in demand during a period of unprecedented economic expansion over the two centuries between 1730 and 1930. In some cases, such as in exchange for harvested grains, the price of gold would have varied from season to season, often wildly. But with all the individual goods, there will have been a match with their time-preferences between manufactured goods and gold and gold substitutes. Therefore, the interest rate on money offered by banks is the other side of the time-preferences of the goods produced by their borrowers, who were predominantly manufacturers and merchants seeking trade finance.
The reason interest rates are set by the demands for money by manufacturers is they have to expend capital in order to produce. Capital becomes one of two essential elements of the price of a future good, the other essential being profit. The capital value of an asset used in production is the sum of the value of output it generates discounted to its present value. If prices of goods are rising, the producer can increase his time-preference in the expectation of higher end-prices for his production. Alternatively, if prices are not rising, or even falling he is limited in his time-preference.
This explains why when prices generally rose, bond yields, as proxy for term interest rates paid by borrowers, also rose. Equally, when prices fell, a producer was less able to bid up his time preferences, so term interest rates fell. In other words, before central banks took upon themselves to control interest rates, interest rates simply correlated to demand for capital from producers.
This analysis of the relationship between prices is wholly in accordance with Carl Menger's insight, that a price only exists for commodities and goods for which supply is limited to less than potential demand.8
POST-1930
After 1930 the paradox was still observed until the 1970s, when the relationship appeared to break down.
https://gm-media-library.s3.eu-west-...febdab1363.png
In the 1970s price inflation according to the ONS accelerated from 5.4% in 1969, to 17.1% in 1974. During that time the Bank of England only increased interest rates under pressure from the markets. Interest rate policy fed a growing preference for hoarding goods and reducing personal cash balances. In this case, the correlation between bond yields and the price level reflected a shift in public confidence in the future purchasing power of the currency, which drove the time-preferences in the market, instead of widespread demand for capital investment.
Bond yields topped out in autumn 1974 before declining; but interest rates finally peaked in 1979/80. This is not fully reflected in the bond yield shown in Chart 4, because the yield curve was sharply negative at that time.
Since that tumultuous decade correlation ceased, and the Bank of England appears to have gained control over interest rates from markets.
It is hardly surprising that when central banks implement monetary policies to ensure that the price level never falls, the normal relationship between the price level and interest rates is interrupted. The relationship between savers and investing producers, which is the basis of the Gibson observation, becomes impaired.
CONCLUSION
The following question was raised earlier in this paper:
If Gibson's paradox is still relevant it presents a potential challenge to monetary policy. The question arises as to whether it is solely an empirical phenomenon of metallic, or sound money, or whether its validity persists to this day, hidden from us by the expansion of fiat currency and bank credit, and the central banks' success in substituting pure fiat currency in place of sound money. If the Paradox is solely a consequence of metallic or sound money it might pose no threat to the modern currency system; otherwise it may have profound implications.
It is clear that the difference between markets historically and those of today is that interest rates were set by the demand for savings to invest in production, while today they are set by monetary policy. Monetary policy is not consistent with the basic function of interest rates, which is to reflect a market rate between savers and borrowers to balance supply and demand. Instead, monetarists believe otherwise, that interest rates can be used to regulate the quantity of money.
Gibson's paradox is not dependent on metallic or sound money so much as it is dependent on free markets distributing savings in accordance with demand from borrowers investing in their businesses. We must therefore conclude that monetary policies intended to suppress this effect do have profound implications.
Keynes in his General Theory in 1936 wrote the following in his concluding notes:
"I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution."9
The long, slow euthanasia of Keynes's rentier class is what has changed. Businesses obtain the funds for investment from other sources directed by the financial system. Savers are channelled increasingly into stock markets, where they participate in businesses as co-owners, instead of lending to them indirectly through the banking system. The banks provide working capital, mainly through the expansion of bank credit, at rates primarily determined not by supply and demand for savings, but set by central banks.
Central banks' insistence on monetary solutions to economic problems have not only buried the Say's law relationship between savers and investing entrepreneurs, they have turned the principal objective of entrepreneurs from patient wealth creation through the accumulation of profits into ephemeral wealth creation through the accumulation of debt. They have been caught up in a credit cycle created by central banks and are no longer borrowing genuine savings from savers who expect to be repaid. If Gibson's paradox had been satisfactorily explained by Tooke or Gibson, the assumptions behind the quantity theory of money and its derivatives would have been thrown into doubt before they became central to monetary policy.
This is a dramatic claim perhaps, but it might have demolished the suppositions behind the quantity theory of money, which became Fisher's equation of exchange, and the brand of monetarism followed by the Chicago school under Milton Friedman. Misleading ideas, such as velocity of circulation in the equation of exchange would have not been taken as meaningful economic indicators. As it is Gibson's paradox is unknown to the majority of economists today, who assume the quantity theory of money is unchallengeable.
So, to put the explanation of Gibson's paradox at its simplest,
If the prices of goods are expected to rise, then their time preferences are bound to increase, and if they are expected to fall, their time preferences are bound to fall. That is why interest rates correlate with the price level.
Click here to view the entire Whitepaper as a PDF...
1 J M KEYNES, A TREATISE ON MONEY, VOL.2 P.1981930
2 IRVING FISHER, THE THEORY OF INTEREST, 1930.
3 FRIEDMAN AND SCHWARTZ, FROM GIBSON TO FISHER, EXPLORATIONS IN ECONOMIC RESEARCH NBER VOL. 3,2 (SPRING)
4 KNUT WICKSEL, INTEREST AND PRICES, 1936, TRANSLATED FROM THE GERMAN, GELDZINS UND GUTERPREISER, 1898.
5 NBER WORKING PAPER SERIES NO. 1680 GIBSON'S PARADOX AND THE GOLD STANDARD, 1985.
6 J M KEYNES, THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY, 1936.
7 JAMES TURK, THE ABOVEGROUND GOLD STOCK: ITS IMPORTANCE AND ITS SIZE SEPT 2012 HTTPS://WWW.GOLDMONEY.COM/IMAGES/MED...DGOLDSTOCK.PDF (ACCESSED JULY 2015)
8 CARL MENGER: GRUNDSÄTZE DER VOLKSWIRTSCHAFTSLEHRE (PRINCIPLES OF ECONOMICS)1871.
9 JM KEYNES: THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY PP 376 OF THE 1936 EDITION.
The views and opinions expressed in this article are those of the author(s) and do not reflect those of GoldMoney, unless expressly stated. The article is for general information purposes only and does not constitute either GoldMoney or the author(s) providing you with legal, financial, tax, investment, or accounting advice. You should not act or rely on any information contained in the article without first seeking independent professional advice. Care has been taken to ensure that the information in the article is reliable; however, GoldMoney does not represent that it is accurate, complete, up-to-date and/or to be taken as an indication of future results and it should not be relied upon as such. GoldMoney will not be held responsible for any claim, loss, damage, or inconvenience caused as a result of any information or opinion contained in this article and any action taken as a result of the opinions and information contained in this article is at your own risk.
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By the Visual Journalism Team
BBC News
People in Gaza are facing desperate living conditions and food shortages as the conflict between Israel and Hamas continues.
Almost two million people - most of the population - are reported to have fled their homes and those who remain in northern Gaza are on the brink of famine, according to the United Nations.
The Strip has been under the control of Hamas since 2007 and Israel says it is trying to destroy the military and governing capabilities of the Islamist group, which is committed to the destruction of Israel.
Much of the small enclave of Gaza, only 41km (25 miles) long and 10km wide, bounded by the Mediterranean Sea on one side and fenced off from Israel and Egypt at its borders - has become uninhabitable.
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And people are starving. Half the population is struggling with catastrophic hunger and famine is imminent in northern parts of Gaza, according to the Integrated Food Security Phase Classification (IPC), the global body responsible for declaring famine.
Save the Children says families are struggling to find enough food and water and children are dying because of malnutrition and disease.
Even before the current conflict, about 80% of the population of Gaza needed humanitarian aid. Aid deliveries halted at the start of the latest conflict have resumed, but at much lower levels - with about 164 aid lorries a day crossing into southern Gaza from Egypt.
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The World Food Program says that addressing the simple food needs would require at least 300 trucks a day to enter Gaza and distribute food.
Agencies say distribution is hampered by the lack of infrastructure as the area endures intense bombardment, movement restrictions, interrupted communications, and fuel shortages.
There have also been reports of crowds looting aid lorries.
The WFP's chief operating officer, Carl Skau said: "The complicated border controls, combined with the high tensions and desperation inside Gaza, make it nearly impossible for food supplies to reach people in need, particularly in the north."
Some countries, including the US, Belgium, and Jordan, have delivered aid by air - parachuting crates of aid from planes into coastal areas.
Aid charity World Central Kitchen built its jetty on the coast and delivered 200 tonnes of food by sea in its first shipment. The cargo includes beans, carrots, canned tuna, chickpeas, canned corn, parboiled rice, flour, oil, salt, and pallets of dates.
https://ichef.bbci.co.uk/news/976/cp..._wckaid976.jpgIMAGE SOURCE, REUTERS
The US military is also planning to build a temporary dock and pier for deliveries by sea.
Israel's ground offensive
The desperate food situation comes after six months of conflict.
Israel responded to the 7 October attacks by Hamas with an intense bombing campaign, followed by a ground invasion.
Armored bulldozers created routes for tanks and troops, as the Israeli forces tried to clear the area of Hamas fighters based in northern Gaza.
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Having cut Gaza in two, the Israelis pushed further into Gaza City, where they faced resistance from Hamas. While Israeli forces have since conducted ground operations across much of northern Gaza, there are still clashes in some areas, according to analysts from the Institute for the Study of War.
Whole districts in Gaza City have been razed to the ground and swathes of agricultural land and greenhouse areas have been returned to sand under the tracks of heavy vehicles and tanks as part of clearing operations by Israeli troops.
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IMAGE SOURCE, GETTY IMAGES
Civilians living in the area north of the Wadi Gaza riverbed, including the densely populated Gaza City, were warned to evacuate in October.
The Erez border crossing into Israel in the north was closed, so those living in the evacuation zone had no choice but to head towards the southern districts.
Millions seek shelter in southern Gaza
After establishing a strong position in the north, Israeli forces focused their attention on the southern cities.
The main urban areas - Khan Younis and Rafah - have been bombed and Israeli troops have clashed with Hamas fighters on the ground.
The local population, now including thousands who fled fighting in the north, have been told to move to a so-called "safe area" at al-Mawasi, a thin strip of mainly agricultural land along the Mediterranean coast, close to the Egyptian border.
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IMAGE SOURCE, REUTERS
Fighting in Khan Younis and the central Deir al Balah area has also pushed tens of thousands of people to flee to the southern district of Rafah, the UN said, where more than a million people "are squeezed into an extremely overcrowded space".
According to the UN, just over 75% of Gaza's population - some 1.7 million people - were already registered refugees before October 2023.
Palestinian refugees are defined by the UN as people whose "place of residence was Palestine during the period 1 June 1946 to 15 May 1948, and who lost both home and means of livelihood as a result of the 1948 War". More than 500,000 of the refugee population lived in eight crowded "camps" which became densely packed built-up areas, located across the Strip.
Following Israel's warnings after 7 October, many of those refugees joined the hundreds of thousands of people forced to flee their homes, the UN says.
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On average, before the conflict, there were more than 5,700 people per sq km in Gaza - very similar to the average density in London. The UN says more than half of Gaza's population is now crammed into Rafah - previously a town of 250,000 people.
"Their living conditions are abysmal - they lack the necessities to survive, stalked by hunger, disease and death," according to the UN's relief coordinator Martin Griffiths.
Overcrowding has become a major concern in UN emergency shelters in central and southern Gaza, with some far exceeding their capacity. Other families are living in tents or makeshift shelters in compounds or on open areas of waste ground.
Areas of new tents that sprung up close to the Egyptian border between the start of December and the middle of January cover roughly 3.5 sq km, equivalent to nearly 500 Premier League football pitches.
The satellite images, captured on 15 October and 14 January, show a dramatic change - now nearly every patch of accessible, undeveloped ground in an area of north-west Rafah has been turned into a refuge for displaced people.
Israel has already launched hundreds of airstrikes across Gaza. US intelligence assessments seen by CNN in December said Israel had used more than 29,000 bombs and missiles since the start of the conflict, causing extensive damage to buildings and infrastructure.
The World Health Organization (WHO) says up to 80% of civilian infrastructure - including homes, hospitals, schools, water, and sanitation facilities - have been destroyed or severely damaged and will take billions of dollars of investment over decades to recover.
The UN's environmental program says it could take between three and 12 years just to clear the debris and explosive remnants of war.
Gazan officials warn more than 500,000 people will have no homes to return to, and many more will not be able to return immediately after the conflict because of damage to surrounding infrastructure.
The map below - using analysis of satellite data by Corey Scher of CUNY Graduate Center and Jamon Van Den Hoek of Oregon State University - shows which urban areas have sustained concentrated damage since the start of the conflict.
They say at least 160,000 buildings across the whole Gaza Strip have suffered damage. North Gaza and Gaza City have borne the brunt of this, with at least 70% of buildings in the two northern regions believed to have been damaged, but their analysis now suggests up to 54% of buildings in the Khan Younis area have also been damaged.
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Many healthcare facilities have been left unable to function as a result of bomb damage or lack of supplies and fuel.
The UN says hospital capacity is overstretched and only 12 of Gaza's 36 hospitals are still partially functioning.
Some hospitals have also become the target of Israeli operations as they say Hamas use the buildings. Medics working at Khan Younis's Nasser hospital were shot at and detained during an Israeli raid in February. Israeli forces say they killed several Hamas "terrorists" and detained dozens of suspects in an operation at Gaza City's al-Shifa hospital this week.
Trapped by gunfire at Gaza hospital, people risked death to help injured
Gaza medics tell BBC that Israeli troops beat and humiliated them
More than 1,200 Israelis and foreign nationals were killed during the Hamas attacks on 7 October. More than 31,000 Palestinians - including about 13,000 children - have been killed in Israeli airstrikes and operations since then, according to Gaza's Hamas-run health ministry.
It is difficult for the BBC to verify exact numbers, but the UN's World Health Organization (WHO) WHO has said it has no reason to believe the figures are inaccurate.
The images below indicate just how much Gaza has changed. One image, released by the IDF, shows tanks and armored bulldozers on the beach near Gaza City.
A photo of the same beach from last summer shows people making the most of a hot day in Gaza, families splashing in the sea or sitting on fanning out along the beach.
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- Post #12,578
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https://www.armstrongeconomics.com/a...ed-do-in-2024/
What Will the Fed do in 2024?
Posted Jan 3, 2024 By Martin Armstrong |
SPREAD THE LOVE https://www.armstrongeconomics.com/w...le_12-1-23.png
Everyone wants to know what the Federal Reserve will do in 2024. Of course, people want to believe that the Fed will slash interest rates in the New Year. The pundits cling to every word except when, at the start of the month of December, Powell boldly criticized the Biden Administration, saying that his outrageous spending is “unsustainable” and central banks do not criticize their governments. They certainly do not criticize each other. I have met with the boards of central banks worldwide because I understand their predicament. Unless you have been behind those closed doors, you will never comprehend the intricacies that are taking place.
https://www.armstrongeconomics.com/w...Bank.jpg?w=300
The Federal Open Market Committee (FOMC) held rates at the 5.25% to 5.5% range at their last meeting in December 2023. Additionally, the committee indicated the possibility of at least three rate cuts in 2024, as their favored gauges for inflation appear to be easing. The “dot plot,” which reflects individual members’ expectations, suggests the potential for four rate cuts in 2025 and three more in 2026, bringing the rate down to between 2% and 2.25%. Now, that is simply what the public has been led to believe.
The Fed’s last decision reflects a cautious approach to policy tightening, considering multiple factors unknown to the public before any further adjustments. The committee’s PUBLIC decision and future outlook are based on the evolving economic conditions in relation to inflation and the labor market.
The Federal Open Market Committee will meet in 2024 as follows:
What Will the Fed do in 2024?
Posted Jan 3, 2024 By Martin Armstrong |
SPREAD THE LOVE https://www.armstrongeconomics.com/w...le_12-1-23.png
Everyone wants to know what the Federal Reserve will do in 2024. Of course, people want to believe that the Fed will slash interest rates in the New Year. The pundits cling to every word except when, at the start of the month of December, Powell boldly criticized the Biden Administration, saying that his outrageous spending is “unsustainable” and central banks do not criticize their governments. They certainly do not criticize each other. I have met with the boards of central banks worldwide because I understand their predicament. Unless you have been behind those closed doors, you will never comprehend the intricacies that are taking place.
https://www.armstrongeconomics.com/w...Bank.jpg?w=300
The Federal Open Market Committee (FOMC) held rates at the 5.25% to 5.5% range at their last meeting in December 2023. Additionally, the committee indicated the possibility of at least three rate cuts in 2024, as their favored gauges for inflation appear to be easing. The “dot plot,” which reflects individual members’ expectations, suggests the potential for four rate cuts in 2025 and three more in 2026, bringing the rate down to between 2% and 2.25%. Now, that is simply what the public has been led to believe.
The Fed’s last decision reflects a cautious approach to policy tightening, considering multiple factors unknown to the public before any further adjustments. The committee’s PUBLIC decision and future outlook are based on the evolving economic conditions in relation to inflation and the labor market.
The Federal Open Market Committee will meet in 2024 as follows:
- Jan. 30-31
- Mar. 19-20
- Apr. 30 – May 1
- Jun. 11-12
- Jul. 30-31
- Sept. 17-18
- Nov. 6-7
- Dec. 17-18
https://www.armstrongeconomics.com/w...End-Report.png
There are simply things I cannot publish on the public blog. I have posted articles on the Socrates private blog that explain the Fed’s direction for 2024 in further detail. Now, consider the dates above and consider what events align with them. Further details will be provided in the Year-End Report, which should be out by the end of this week.
https://www.armstrongeconomics.com/w...cord.jpg?w=300
The Federal Reserve cannot criticize the federal government. The most significant issues facing our economy are simply out of the Fed’s hands: war, taxation, and government spending. Chairman Jerome Powell surprised everyone when he called current government spending “unsustainable.” While not a direct criticism, Powell issued a stark warning that aligns with our Revolution Cycle of 72 years. In 1951, the central bank defied the US government by refusing to purchase debt to prevent rate hikes amid the Korean War.
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https://www.armstrongeconomics.com/a...ed-do-in-2024/
What Will the Fed do in 2024?
Posted Jan 3, 2024 By Martin Armstrong |
SPREAD THE LOVE https://www.armstrongeconomics.com/w...le_12-1-23.png
Everyone wants to know what the Federal Reserve will do in 2024. Of course, people want to believe that the Fed will slash interest rates in the New Year. The pundits cling to every word except when, at the start of the month of December, Powell boldly criticized the Biden Administration, saying that his outrageous spending is “unsustainable” and central banks do not criticize their governments. They certainly do not criticize each other. I have met with the boards of central banks worldwide because I understand their predicament. Unless you have been behind those closed doors, you will never comprehend the intricacies that are taking place.
https://www.armstrongeconomics.com/w...Bank.jpg?w=300
The Federal Open Market Committee (FOMC) held rates at the 5.25% to 5.5% range at their last meeting in December 2023. Additionally, the committee indicated the possibility of at least three rate cuts in 2024, as their favored gauges for inflation appear to be easing. The “dot plot,” which reflects individual members’ expectations, suggests the potential for four rate cuts in 2025 and three more in 2026, bringing the rate down to between 2% and 2.25%. Now, that is simply what the public has been led to believe.
The Fed’s last decision reflects a cautious approach to policy tightening, considering multiple factors unknown to the public before any further adjustments. The committee’s PUBLIC decision and future outlook are based on the evolving economic conditions in relation to inflation and the labor market.
The Federal Open Market Committee will meet in 2024 as follows:
What Will the Fed do in 2024?
Posted Jan 3, 2024 By Martin Armstrong |
SPREAD THE LOVE https://www.armstrongeconomics.com/w...le_12-1-23.png
Everyone wants to know what the Federal Reserve will do in 2024. Of course, people want to believe that the Fed will slash interest rates in the New Year. The pundits cling to every word except when, at the start of the month of December, Powell boldly criticized the Biden Administration, saying that his outrageous spending is “unsustainable” and central banks do not criticize their governments. They certainly do not criticize each other. I have met with the boards of central banks worldwide because I understand their predicament. Unless you have been behind those closed doors, you will never comprehend the intricacies that are taking place.
https://www.armstrongeconomics.com/w...Bank.jpg?w=300
The Federal Open Market Committee (FOMC) held rates at the 5.25% to 5.5% range at their last meeting in December 2023. Additionally, the committee indicated the possibility of at least three rate cuts in 2024, as their favored gauges for inflation appear to be easing. The “dot plot,” which reflects individual members’ expectations, suggests the potential for four rate cuts in 2025 and three more in 2026, bringing the rate down to between 2% and 2.25%. Now, that is simply what the public has been led to believe.
The Fed’s last decision reflects a cautious approach to policy tightening, considering multiple factors unknown to the public before any further adjustments. The committee’s PUBLIC decision and future outlook are based on the evolving economic conditions in relation to inflation and the labor market.
The Federal Open Market Committee will meet in 2024 as follows:
- Jan. 30-31
- Mar. 19-20
- Apr. 30 – May 1
- Jun. 11-12
- Jul. 30-31
- Sept. 17-18
- Nov. 6-7
- Dec. 17-18
https://www.armstrongeconomics.com/w...End-Report.png
There are simply things I cannot publish on the public blog. I have posted articles on the Socrates private blog that explain the Fed’s direction for 2024 in further detail. Now, consider the dates above and consider what events align with them. Further details will be provided in the Year-End Report, which should be out by the end of this week.
https://www.armstrongeconomics.com/w...cord.jpg?w=300
The Federal Reserve cannot criticize the federal government. The most significant issues facing our economy are simply out of the Fed’s hands: war, taxation, and government spending. Chairman Jerome Powell surprised everyone when he called current government spending “unsustainable.” While not a direct criticism, Powell issued a stark warning that aligns with our Revolution Cycle of 72 years. In 1951, the central bank defied the US government by refusing to purchase debt to prevent rate hikes amid the Korean War.
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- Mar 23, 2024 11:40am Mar 23, 2024 11:40am
- | Commercial Member | Joined Dec 2014 | 11,637 Posts | Online Now
https://www.hussmanfunds.com/comment/mc240204/
https://www.hussmanfunds.com/wp-cont...usterfluff.jpg
Cluster of Woe
https://www.hussmanfunds.com/wp-cont...utton60x60.jpg
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John P. Hussman, Ph.D.
President, Hussman Investment Trust
February 2024
By relentlessly depriving investors of risk-free return, the Federal Reserve has spawned an all-asset speculative bubble that we estimate will provide investors little but return-free risk. From a valuation standpoint, there is no ‘tradeoff’ between return and risk. Rather, depressed valuations tend to be followed by both strong long-term returns and modest subsequent losses, while extreme valuations tend to be followed by both poor long-term returns and deep subsequent losses.
Recall that the S&P 500 lagged Treasury bills from 1929-1947, 1966-1985, and 2000-2013. 50 years out of an 84-year period. When the investment horizon begins at extreme valuations, and doesn’t end at the same extremes, the retreat in valuations acts as a headwind that consumes the return that would otherwise be provided by dividends and growth in fundamentals.
– John P. Hussman, Ph.D., Return-Free Risk, January 2022
The total return of the S&P 500 remains behind Treasury bills since its January 2022 peak more than two years ago. Meanwhile, the technology-heavy Nasdaq 100 is only even with Treasury bills since the preponderance of warning flags I noted in our November 2021 comment, Motherlode. As I observed last month, the strongest stock market returns in the coming decade, perhaps longer, are likely to emerge during advances in the S&P 500 that attempt to catch up with the cumulative return of risk-free Treasury bills.
Our most reliable valuation measures are again beyond every extreme in U.S. history prior to March 2021, apart from 5 weeks surrounding the 1929 market peak.
Meanwhile, our most reliable gauge of market internals remains unfavorable as the result of persistent divergences across individual securities and sectors. Yet even though the market has lagged Treasury bills for more than two years, my impression is that investors feel an almost excruciating “fear of missing out” amid nominal record highs in the S&P 500 and Nasdaq 100, enthusiasm about an economic “soft landing,” and an expected “pivot” to lower interest rates. In my view, abandoning systematic investment discipline amid the most extreme market conditions in history would be a costly way to buy a fleeting sigh of relief.
https://www.hussmanfunds.com/wp-cont.../mc240204a.jpg
We know that valuations are informative about long-term returns and full-cycle losses, but not about short-term outcomes. The only way the market could reach valuations as extreme as today was to advance, unfazed, through every lesser extreme. So it’s not just extreme valuations, but the full combination of extreme valuations, divergent market internals, and a fresh preponderance of warning flags that holds us to a defensive outlook here.
Abandoning systematic investment discipline amid the most extreme market conditions in history would be a costly way to buy a fleeting sigh of relief.
Keep in mind that the entire total return of the S&P 500 in the complete market cycle since 2007 has emerged in periods when market internals were favorable, and the most extreme losses have emerged in periods when they were not. If the market is destined to proceed higher without limit, I expect a shift in market internals to capture that prospect. We adapted our investment discipline in 2017 and more fully in 2021 to prioritize the condition of market internals over other considerations such as valuations and overextended syndromes (see “How I acquired the ‘permabear’ label” for a full discussion). Our investment outlook will shift as those considerations shift.
https://www.hussmanfunds.com/wp-cont.../mc240204b.png
Cluster of Woe
Based on dozens of measures that include valuations, internals, overextension syndromes, and numerous technical, fundamental, and cyclical gauges we’ve developed over time, we estimate that current market conditions now “cluster” among the worst 0.1% instances in history – more similar to major market peaks and dissimilar to major market lows than 99.9% of all post-war periods.
I call this the “Cluster of Woe” because the handful of similarly extreme instances (most notably in 1972, 1987, 1998, 2000, 2018, 2020, and 2022) were typically followed by abrupt market losses of 10%-30% over the next 6-10 weeks (average -12.5%), with losses at the smaller end of that range often seeing deeper follow-through later. Still, I treat these outcomes as “regularities” rather than “forecasts,” and my impression is that investors don’t accept those regularities anyway.
You may recall that the most recent instance prior to this one was in July 2023 (see Air Pockets, Free-Falls, and More Cowbell). It was followed by a quick 10% air-pocket into late-October, but with no deeper follow-through as yet.
A somewhat less pointed way to think about current conditions is to identify instances in history that were “closest” based on a broad set of key cyclical market indicators (valuations, market internals, overextended syndromes, and various proprietary gauges). The chart below shows these “nearest neighbors” since 1998 as red bars.
These neighbors include a number of less extreme instances than those noted above, and not all of them were followed by steep declines. For example, the 2014 similarity was simply resolved by the S&P 500 going nowhere over the next two years. Without making near-term forecasts, suffice it to say that current conditions are the sort of rare market extremes that tend to resolve badly.
https://www.hussmanfunds.com/wp-cont.../mc240204c.png
The market losses that resolve extreme overextension are not just short-term events. Combinations of rich valuations, unfavorable internals, and extreme overextension like these often occur at or near important cyclical market peaks. The potential for a near-term ‘air pocket’ or ‘free fall’ isn’t a forecast so much as a regularity that should not be ruled out. Even passive investors should examine their exposures carefully, and rebalance their portfolios to reflect their actual level of risk tolerance.
You’ll notice that none of the foregoing discussion is focused on recession probabilities, employment, inflation, or earnings expectations. The reason is that the consequences of steep overvaluation, unfavorable internals, and extreme overextension seem to be largely indifferent to these considerations. There’s often no identifiable ‘catalyst’ associated with various market peaks, air pockets, and free-falls. Catalysts tend to emerge later, if at all. To some extent, the initial losses are more behavioral than economic – extreme overextension simply tends to become exhausted, followed by concerted attempts by speculators to exit at still-elevated levels.
– John P. Hussman, Ph.D., Air Pockets, Free-Falls, and More Cowbell, July 24, 2023
The chart below shows the relationship between MarketCap/GVA and subsequent 10-year average annual nominal S&P 500 total returns, in data since 1928. The only instances more extreme than today were 28 weeks surrounding the 2022 peak, and 5 weeks surrounding the 1929 market peak. The present extreme is about three times the valuation that has historically been associated with run-of-the-mill S&P 500 total returns averaging 10% annually.
https://www.hussmanfunds.com/wp-cont.../mc240204d.png
For investors inclined to take current earnings and Wall Street’s “forward operating earnings” estimates at face value, it’s worth noting that earnings-based measures are also extreme from a historical perspective. As I’ve noted before, the S&P 500 “forward operating” P/E only became popular in the late-1990’s, and data hardly exist prior to 1980. Still, there’s a better correlation between the S&P 500 forward operating P/E and the Shiller cyclically-adjusted P/E (CAPE) than investors imagine, so we can use the CAPE to proxy how the forward P/E would have behaved historically.
The chart below offers that perspective. The current level of more than 20 on the forward P/E is beyond every extreme in history except for the periods closely surrounding the 2000 and 2022 market extremes.
https://www.hussmanfunds.com/wp-cont.../mc240204e.png
On the subject of corporate earnings, it’s worth repeating that the surplus of one sector of the economy (income in excess of consumption and net investment) is always the deficit of other sectors (government, households, and foreign trading partners). That’s not a theory, it’s just an accounting identity. Nothing – not monetary policy, not debt creation, not bank lending – nothing changes the arithmetic. It’s just math.
When investors look at current record profit margins and corporate free cash flow, they should recognize that this apparent prosperity is possible only because of massive deficits in the government sector, and depressed savings in the household sector in recent years. Sustaining one requires sustaining the other. Again, that’s not a theory, it’s just arithmetic.
The chart below is a slight rearrangement of our usual “sectoral deficits” chart. The blue line in the chart below shows U.S. corporate free cash flow (profits less investment). The red line is inverted, and shows the sum of U.S. government and household income in excess of consumption and net investment. There are a few addbacks and deductions to avoid double-counting and I’ve left out the foreign sector for simplicity.
The key point is simple: the “prosperity” of U.S. corporations here is the mirror image of massive government deficits and weak household savings.
https://www.hussmanfunds.com/wp-cont.../mc240204f.png
While temporary pandemic subsidies drove a brief push to record profit margins in 2021, the larger structural difficulty for both government and households has been a progressive collapse in their income as a share of GDP, resulting from a combination of aggressive tax cuts and weak growth in wage and salary compensation. Corporations have been the primary beneficiaries of both. The problem for investors is that maintaining deficits of this size is likely to prove unsustainable without a debt crisis.
https://www.hussmanfunds.com/wp-cont.../mc240204g.png
Be careful what you wish for
On the subject of Federal Reserve rate cuts, it’s worth emphasizing that the entire total return of the S&P 500 during periods of easy monetary policy has accrued in periods when market internals were favorable as well. That’s not to say that the market can’t advance amid a combination of easy money and unfavorable market internals – it’s just that on average, it’s been the single worst combination for investors. Recall that the Fed eased aggressively and persistently throughout the 2000-2002 and 2007-2009 market collapses.
One way to emphasize this point is to examine the losses of the S&P 500 in the context of monetary policy. The red bars in the chart below show points where the fed funds target rate had been reduced by 2% from its 3-year high. The blue line shows the corresponding drawdown of the S&P 500 from its own 3-year high at each point. Notice that by the time the fed funds rate was down by 2%, the S&P 500 had typically either already had, or was just about to have, a steep loss. More often than not, the U.S. economy was also in recession.
https://www.hussmanfunds.com/wp-cont.../mc240204h.png
Notice that in most cases, the market was falling as the Fed was cutting rates. That’s the only way you can get the Fed funds rate down by 2% with an S&P 500 drawdown already in place. Again, it’s when rate cuts are joined by improved market internals (particularly if valuations have also improved materially) that all the lights go green. That was equally true amid zero interest policies and quantitative easing – nearly all of the total return of the S&P 500 occurred when in periods when market internals were favorable. Fed easing, in itself, isn’t nearly enough, particularly if recession risk is still present.
Recession risk is still present
Amid the enthusiasm and now nearly unanimous consensus that recession risk is behind us, I’ll reiterate our own view: the data remain consistent with a U.S. economy at the borderline of recession, but we would need more evidence to expect that outcome with confidence.
The chart below shows our Economic Activity Composite based on regional and national purchasing managers and Fed surveys. After a brief pop in the fourth quarter, this composite has again turned lower, and is already at levels that have historically been consistent with emerging recession.
https://www.hussmanfunds.com/wp-cont.../mc240204j.png
Within these surveys, the “leading” components define what I’ve called “order surplus”: new orders, plus backlogs, minus existing inventories. This measure tends to lead the “headline” index by about 3 months. Again, the current level has dropped to levels that have historically defined the borderline of fresh recessions.
https://www.hussmanfunds.com/wp-cont.../mc240204k.png
Despite the apparently strong jobs report last week, the “aggregate hours” index actually fell, and is also down quarter-over-quarter. The number of jobs may have increased, but hours have been cut. As my friend Lakshman Achuthan at ECRI notes, this is a symptom of what economists call “labor hoarding” – the attempt to cut labor costs without cutting jobs themselves. It may turn out that this is the correct response to an economy that touches the threshold of recession and doesn’t continue lower. Still, for now, we believe the economy is still at that threshold.
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Another way to see this shift in labor composition is to note that the January report featured a drop of 63,000 jobs in the “Employed: Usually Work Full Time” classification, while “Part-Time Due to Economic Reasons” classification grew by 211,000, with “Slack Work or Business Conditions” cited among 34,000 of those workers. As a result, jobs classified as part time due to economic reasons are growing faster than those classified as usually full time. Not surprisingly, that tends to be indicative of an economy at the threshold of recession.
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Two additional disparities are worth monitoring. The chart below shows the year-over-year growth of real Gross Domestic Income versus real Gross Domestic Product. Technically, these measure the same thing, just in different ways, and they’re normally identical aside from a small statistical disparity. In a few cases, however, as when the U.S. was rolling into global financial crisis, GDI fell into contraction well before GDP. Currently, GDI is again in contraction year-over-year, making it difficult to take the robust 4th quarter GDP figures at face value. It may be best to allow the possibility that a “soft landing” may not be as sure as it seems.
https://www.hussmanfunds.com/wp-cont.../mc240204p.png
We observe a similar disparity in job surveys that also measure the same thing in different ways. In this case, job growth as measured by the “household survey,” which delivers the unemployment rate, has been markedly weaker than the “establishment survey,” which delivers the “headline” jobs number. Here, the household survey is clearly more volatile. Because it’s not as heavily “smoothed,” quick swings can sometimes be informative about emerging trends, but those swings can also represent noise.
As with all noise reduction problems, it’s best to draw information by combining multiple sensors. In the context of weakening order surplus, employment composition, and GDI, the weak job creation in the household sector contributes to our view that recession concerns shouldn’t be easily dismissed.
https://www.hussmanfunds.com/wp-cont.../mc240204q.png
In the bond market, we would characterize the prevailing 4.02% yield on 10-year Treasury bonds as “reasonable but inadequate.” The only change to last month’s comment is that our best systematic benchmark (below which 10-year Treasury bonds have historically lagged T-bills) presently stands at about 5.2%. That’s not a forecast, just a benchmark of what we would view as an adequate yield, relative to T-bills. Our view of precious metals shares is generally favorable, but remember they’re more volatile, and that upward pressure on bond yields can be a headwind, as we saw after last week’s employment report.
As for the stock market, the bottom line is this. We estimate that current market conditions now “cluster” among the worst 0.1% instances in history – more similar to major market peaks and dissimilar to major market lows than 99.9% of all post-war periods. Without making forecasts, it’s fair to say that we would not be surprised by a near-term market loss on the order of 10% or more in the S&P 500, nor would we be surprised by a full-cycle market loss on the order of 50-65%, nor a U.S. recession that the consensus seems to have ruled out.
Emphatically – emphatically – our investment outlook will change as market conditions change. A favorable shift in market internals would encourage us to adopt a neutral or constructive outlook (albeit with position limits and safety nets) even amid current overvalued, overbought, overbullish extremes. We made those constructive adaptations to our investment discipline in 2017 and 2021, and we are serious about adhering to that discipline. For now, however, we are equally serious about the downside risk, and frankly, the crash risk, implied by prevailing extremes.
I generally try to avoid near term forecasts of market direction. The predictable amount of market return over a one-week period is overwhelmed by short-term volatility, and forecasts based on longer time horizons implicitly assume that the Market Climate we identify will not change over the forecast period. Given my general avoidance of forecasts, there are very few situations when I would state my views about the market as a ‘warning.’ Unfortunately, in contrast to more general Market Climates that we observe from week to week, the current set of conditions provides no historical examples when stocks have followed with decent returns. Every single instance has been a disaster. We can’t rule out the possibility that investors will adopt a fresh willingness to speculate (which we would observe through an improvement in market internals). Such speculation might prolong the current advance modestly, but even this would not substantially alter the risks that have ultimately been associated with overvalued, overbought, overbullish conditions.
– John P. Hussman, Ph.D., Warning – Examine All Risk Exposures, October 15, 2007
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The foregoing comments represent the general investment analysis and economic views of the Advisor, and are provided solely for the purpose of information, instruction and discourse.
Prospectuses for the Hussman Strategic Growth Fund, the Hussman Strategic Total Return Fund, and the Hussman Strategic Allocation Fund, as well as Fund reports and other information, are available by clicking “The Funds” menu button from any page of this website.
Estimates of prospective return and risk for equities, bonds, and other financial markets are forward-looking statements based the analysis and reasonable beliefs of Hussman Strategic Advisors. They are not a guarantee of future performance, and are not indicative of the prospective returns of any of the Hussman Funds. Actual returns may differ substantially from the estimates provided. Estimates of prospective long-term returns for the S&P 500 reflect our standard valuation methodology, focusing on the relationship between current market prices and earnings, dividends and other fundamentals, adjusted for variability over the economic cycle. Further details relating to MarketCap/GVA (the ratio of nonfinancial market capitalization to gross-value added, including estimated foreign revenues) and our Margin-Adjusted P/E (MAPE) can be found in the Market Comment Archive under the Knowledge Center tab of this website. MarketCap/GVA: Hussman 05/18/15. MAPE: Hussman 05/05/14, Hussman 09/04/17.
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Cluster of Woe
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John P. Hussman, Ph.D.
President, Hussman Investment Trust
February 2024
By relentlessly depriving investors of risk-free return, the Federal Reserve has spawned an all-asset speculative bubble that we estimate will provide investors little but return-free risk. From a valuation standpoint, there is no ‘tradeoff’ between return and risk. Rather, depressed valuations tend to be followed by both strong long-term returns and modest subsequent losses, while extreme valuations tend to be followed by both poor long-term returns and deep subsequent losses.
Recall that the S&P 500 lagged Treasury bills from 1929-1947, 1966-1985, and 2000-2013. 50 years out of an 84-year period. When the investment horizon begins at extreme valuations, and doesn’t end at the same extremes, the retreat in valuations acts as a headwind that consumes the return that would otherwise be provided by dividends and growth in fundamentals.
– John P. Hussman, Ph.D., Return-Free Risk, January 2022
The total return of the S&P 500 remains behind Treasury bills since its January 2022 peak more than two years ago. Meanwhile, the technology-heavy Nasdaq 100 is only even with Treasury bills since the preponderance of warning flags I noted in our November 2021 comment, Motherlode. As I observed last month, the strongest stock market returns in the coming decade, perhaps longer, are likely to emerge during advances in the S&P 500 that attempt to catch up with the cumulative return of risk-free Treasury bills.
Our most reliable valuation measures are again beyond every extreme in U.S. history prior to March 2021, apart from 5 weeks surrounding the 1929 market peak.
Meanwhile, our most reliable gauge of market internals remains unfavorable as the result of persistent divergences across individual securities and sectors. Yet even though the market has lagged Treasury bills for more than two years, my impression is that investors feel an almost excruciating “fear of missing out” amid nominal record highs in the S&P 500 and Nasdaq 100, enthusiasm about an economic “soft landing,” and an expected “pivot” to lower interest rates. In my view, abandoning systematic investment discipline amid the most extreme market conditions in history would be a costly way to buy a fleeting sigh of relief.
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We know that valuations are informative about long-term returns and full-cycle losses, but not about short-term outcomes. The only way the market could reach valuations as extreme as today was to advance, unfazed, through every lesser extreme. So it’s not just extreme valuations, but the full combination of extreme valuations, divergent market internals, and a fresh preponderance of warning flags that holds us to a defensive outlook here.
Abandoning systematic investment discipline amid the most extreme market conditions in history would be a costly way to buy a fleeting sigh of relief.
Keep in mind that the entire total return of the S&P 500 in the complete market cycle since 2007 has emerged in periods when market internals were favorable, and the most extreme losses have emerged in periods when they were not. If the market is destined to proceed higher without limit, I expect a shift in market internals to capture that prospect. We adapted our investment discipline in 2017 and more fully in 2021 to prioritize the condition of market internals over other considerations such as valuations and overextended syndromes (see “How I acquired the ‘permabear’ label” for a full discussion). Our investment outlook will shift as those considerations shift.
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Cluster of Woe
Based on dozens of measures that include valuations, internals, overextension syndromes, and numerous technical, fundamental, and cyclical gauges we’ve developed over time, we estimate that current market conditions now “cluster” among the worst 0.1% instances in history – more similar to major market peaks and dissimilar to major market lows than 99.9% of all post-war periods.
I call this the “Cluster of Woe” because the handful of similarly extreme instances (most notably in 1972, 1987, 1998, 2000, 2018, 2020, and 2022) were typically followed by abrupt market losses of 10%-30% over the next 6-10 weeks (average -12.5%), with losses at the smaller end of that range often seeing deeper follow-through later. Still, I treat these outcomes as “regularities” rather than “forecasts,” and my impression is that investors don’t accept those regularities anyway.
You may recall that the most recent instance prior to this one was in July 2023 (see Air Pockets, Free-Falls, and More Cowbell). It was followed by a quick 10% air-pocket into late-October, but with no deeper follow-through as yet.
A somewhat less pointed way to think about current conditions is to identify instances in history that were “closest” based on a broad set of key cyclical market indicators (valuations, market internals, overextended syndromes, and various proprietary gauges). The chart below shows these “nearest neighbors” since 1998 as red bars.
These neighbors include a number of less extreme instances than those noted above, and not all of them were followed by steep declines. For example, the 2014 similarity was simply resolved by the S&P 500 going nowhere over the next two years. Without making near-term forecasts, suffice it to say that current conditions are the sort of rare market extremes that tend to resolve badly.
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The market losses that resolve extreme overextension are not just short-term events. Combinations of rich valuations, unfavorable internals, and extreme overextension like these often occur at or near important cyclical market peaks. The potential for a near-term ‘air pocket’ or ‘free fall’ isn’t a forecast so much as a regularity that should not be ruled out. Even passive investors should examine their exposures carefully, and rebalance their portfolios to reflect their actual level of risk tolerance.
You’ll notice that none of the foregoing discussion is focused on recession probabilities, employment, inflation, or earnings expectations. The reason is that the consequences of steep overvaluation, unfavorable internals, and extreme overextension seem to be largely indifferent to these considerations. There’s often no identifiable ‘catalyst’ associated with various market peaks, air pockets, and free-falls. Catalysts tend to emerge later, if at all. To some extent, the initial losses are more behavioral than economic – extreme overextension simply tends to become exhausted, followed by concerted attempts by speculators to exit at still-elevated levels.
– John P. Hussman, Ph.D., Air Pockets, Free-Falls, and More Cowbell, July 24, 2023
The chart below shows the relationship between MarketCap/GVA and subsequent 10-year average annual nominal S&P 500 total returns, in data since 1928. The only instances more extreme than today were 28 weeks surrounding the 2022 peak, and 5 weeks surrounding the 1929 market peak. The present extreme is about three times the valuation that has historically been associated with run-of-the-mill S&P 500 total returns averaging 10% annually.
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For investors inclined to take current earnings and Wall Street’s “forward operating earnings” estimates at face value, it’s worth noting that earnings-based measures are also extreme from a historical perspective. As I’ve noted before, the S&P 500 “forward operating” P/E only became popular in the late-1990’s, and data hardly exist prior to 1980. Still, there’s a better correlation between the S&P 500 forward operating P/E and the Shiller cyclically-adjusted P/E (CAPE) than investors imagine, so we can use the CAPE to proxy how the forward P/E would have behaved historically.
The chart below offers that perspective. The current level of more than 20 on the forward P/E is beyond every extreme in history except for the periods closely surrounding the 2000 and 2022 market extremes.
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On the subject of corporate earnings, it’s worth repeating that the surplus of one sector of the economy (income in excess of consumption and net investment) is always the deficit of other sectors (government, households, and foreign trading partners). That’s not a theory, it’s just an accounting identity. Nothing – not monetary policy, not debt creation, not bank lending – nothing changes the arithmetic. It’s just math.
When investors look at current record profit margins and corporate free cash flow, they should recognize that this apparent prosperity is possible only because of massive deficits in the government sector, and depressed savings in the household sector in recent years. Sustaining one requires sustaining the other. Again, that’s not a theory, it’s just arithmetic.
The chart below is a slight rearrangement of our usual “sectoral deficits” chart. The blue line in the chart below shows U.S. corporate free cash flow (profits less investment). The red line is inverted, and shows the sum of U.S. government and household income in excess of consumption and net investment. There are a few addbacks and deductions to avoid double-counting and I’ve left out the foreign sector for simplicity.
The key point is simple: the “prosperity” of U.S. corporations here is the mirror image of massive government deficits and weak household savings.
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While temporary pandemic subsidies drove a brief push to record profit margins in 2021, the larger structural difficulty for both government and households has been a progressive collapse in their income as a share of GDP, resulting from a combination of aggressive tax cuts and weak growth in wage and salary compensation. Corporations have been the primary beneficiaries of both. The problem for investors is that maintaining deficits of this size is likely to prove unsustainable without a debt crisis.
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Be careful what you wish for
On the subject of Federal Reserve rate cuts, it’s worth emphasizing that the entire total return of the S&P 500 during periods of easy monetary policy has accrued in periods when market internals were favorable as well. That’s not to say that the market can’t advance amid a combination of easy money and unfavorable market internals – it’s just that on average, it’s been the single worst combination for investors. Recall that the Fed eased aggressively and persistently throughout the 2000-2002 and 2007-2009 market collapses.
One way to emphasize this point is to examine the losses of the S&P 500 in the context of monetary policy. The red bars in the chart below show points where the fed funds target rate had been reduced by 2% from its 3-year high. The blue line shows the corresponding drawdown of the S&P 500 from its own 3-year high at each point. Notice that by the time the fed funds rate was down by 2%, the S&P 500 had typically either already had, or was just about to have, a steep loss. More often than not, the U.S. economy was also in recession.
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Notice that in most cases, the market was falling as the Fed was cutting rates. That’s the only way you can get the Fed funds rate down by 2% with an S&P 500 drawdown already in place. Again, it’s when rate cuts are joined by improved market internals (particularly if valuations have also improved materially) that all the lights go green. That was equally true amid zero interest policies and quantitative easing – nearly all of the total return of the S&P 500 occurred when in periods when market internals were favorable. Fed easing, in itself, isn’t nearly enough, particularly if recession risk is still present.
Recession risk is still present
Amid the enthusiasm and now nearly unanimous consensus that recession risk is behind us, I’ll reiterate our own view: the data remain consistent with a U.S. economy at the borderline of recession, but we would need more evidence to expect that outcome with confidence.
The chart below shows our Economic Activity Composite based on regional and national purchasing managers and Fed surveys. After a brief pop in the fourth quarter, this composite has again turned lower, and is already at levels that have historically been consistent with emerging recession.
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Within these surveys, the “leading” components define what I’ve called “order surplus”: new orders, plus backlogs, minus existing inventories. This measure tends to lead the “headline” index by about 3 months. Again, the current level has dropped to levels that have historically defined the borderline of fresh recessions.
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Despite the apparently strong jobs report last week, the “aggregate hours” index actually fell, and is also down quarter-over-quarter. The number of jobs may have increased, but hours have been cut. As my friend Lakshman Achuthan at ECRI notes, this is a symptom of what economists call “labor hoarding” – the attempt to cut labor costs without cutting jobs themselves. It may turn out that this is the correct response to an economy that touches the threshold of recession and doesn’t continue lower. Still, for now, we believe the economy is still at that threshold.
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Another way to see this shift in labor composition is to note that the January report featured a drop of 63,000 jobs in the “Employed: Usually Work Full Time” classification, while “Part-Time Due to Economic Reasons” classification grew by 211,000, with “Slack Work or Business Conditions” cited among 34,000 of those workers. As a result, jobs classified as part time due to economic reasons are growing faster than those classified as usually full time. Not surprisingly, that tends to be indicative of an economy at the threshold of recession.
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Two additional disparities are worth monitoring. The chart below shows the year-over-year growth of real Gross Domestic Income versus real Gross Domestic Product. Technically, these measure the same thing, just in different ways, and they’re normally identical aside from a small statistical disparity. In a few cases, however, as when the U.S. was rolling into global financial crisis, GDI fell into contraction well before GDP. Currently, GDI is again in contraction year-over-year, making it difficult to take the robust 4th quarter GDP figures at face value. It may be best to allow the possibility that a “soft landing” may not be as sure as it seems.
https://www.hussmanfunds.com/wp-cont.../mc240204p.png
We observe a similar disparity in job surveys that also measure the same thing in different ways. In this case, job growth as measured by the “household survey,” which delivers the unemployment rate, has been markedly weaker than the “establishment survey,” which delivers the “headline” jobs number. Here, the household survey is clearly more volatile. Because it’s not as heavily “smoothed,” quick swings can sometimes be informative about emerging trends, but those swings can also represent noise.
As with all noise reduction problems, it’s best to draw information by combining multiple sensors. In the context of weakening order surplus, employment composition, and GDI, the weak job creation in the household sector contributes to our view that recession concerns shouldn’t be easily dismissed.
https://www.hussmanfunds.com/wp-cont.../mc240204q.png
In the bond market, we would characterize the prevailing 4.02% yield on 10-year Treasury bonds as “reasonable but inadequate.” The only change to last month’s comment is that our best systematic benchmark (below which 10-year Treasury bonds have historically lagged T-bills) presently stands at about 5.2%. That’s not a forecast, just a benchmark of what we would view as an adequate yield, relative to T-bills. Our view of precious metals shares is generally favorable, but remember they’re more volatile, and that upward pressure on bond yields can be a headwind, as we saw after last week’s employment report.
As for the stock market, the bottom line is this. We estimate that current market conditions now “cluster” among the worst 0.1% instances in history – more similar to major market peaks and dissimilar to major market lows than 99.9% of all post-war periods. Without making forecasts, it’s fair to say that we would not be surprised by a near-term market loss on the order of 10% or more in the S&P 500, nor would we be surprised by a full-cycle market loss on the order of 50-65%, nor a U.S. recession that the consensus seems to have ruled out.
Emphatically – emphatically – our investment outlook will change as market conditions change. A favorable shift in market internals would encourage us to adopt a neutral or constructive outlook (albeit with position limits and safety nets) even amid current overvalued, overbought, overbullish extremes. We made those constructive adaptations to our investment discipline in 2017 and 2021, and we are serious about adhering to that discipline. For now, however, we are equally serious about the downside risk, and frankly, the crash risk, implied by prevailing extremes.
I generally try to avoid near term forecasts of market direction. The predictable amount of market return over a one-week period is overwhelmed by short-term volatility, and forecasts based on longer time horizons implicitly assume that the Market Climate we identify will not change over the forecast period. Given my general avoidance of forecasts, there are very few situations when I would state my views about the market as a ‘warning.’ Unfortunately, in contrast to more general Market Climates that we observe from week to week, the current set of conditions provides no historical examples when stocks have followed with decent returns. Every single instance has been a disaster. We can’t rule out the possibility that investors will adopt a fresh willingness to speculate (which we would observe through an improvement in market internals). Such speculation might prolong the current advance modestly, but even this would not substantially alter the risks that have ultimately been associated with overvalued, overbought, overbullish conditions.
– John P. Hussman, Ph.D., Warning – Examine All Risk Exposures, October 15, 2007
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The foregoing comments represent the general investment analysis and economic views of the Advisor, and are provided solely for the purpose of information, instruction and discourse.
Prospectuses for the Hussman Strategic Growth Fund, the Hussman Strategic Total Return Fund, and the Hussman Strategic Allocation Fund, as well as Fund reports and other information, are available by clicking “The Funds” menu button from any page of this website.
Estimates of prospective return and risk for equities, bonds, and other financial markets are forward-looking statements based the analysis and reasonable beliefs of Hussman Strategic Advisors. They are not a guarantee of future performance, and are not indicative of the prospective returns of any of the Hussman Funds. Actual returns may differ substantially from the estimates provided. Estimates of prospective long-term returns for the S&P 500 reflect our standard valuation methodology, focusing on the relationship between current market prices and earnings, dividends and other fundamentals, adjusted for variability over the economic cycle. Further details relating to MarketCap/GVA (the ratio of nonfinancial market capitalization to gross-value added, including estimated foreign revenues) and our Margin-Adjusted P/E (MAPE) can be found in the Market Comment Archive under the Knowledge Center tab of this website. MarketCap/GVA: Hussman 05/18/15. MAPE: Hussman 05/05/14, Hussman 09/04/17.
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