Juggling Dynamite

Thanks to author Tim Lindsey for sending me a copy of his new book Headwinds of Opportunity.  A Compass for Sustainable Innovation.

Not only is the book full of valuable stats and up to date information on resource utilization, waste, efficiency, new tech, smart systems and real life case studies, but it’s highly readable and engaging. Also see Dr. Lindsey’s article:  The Business Drivers for Improving Sustainability for more insight.

With 7.6 billion humans on earth and growing, the necessity for sustainable systems and practices is driving innovation at an exponential rate.  Our potential for solutions or self-destruction, has never been greater.  The business and life quality case for smarter practices is overwhelming.  Each of us individually chooses to either embrace and help lead the change, or compound the problems.  It’s all on us, either way.

Nomi Prins has penned a worthwhile summary of current policies, perpetrators and the financial costs mounting in How to set the economy on fire:  Trump’s financial arsonists. Of course, the self-serving financial cartel has been the status quo running us into insolvency long before Trump, but his ‘team’ of banksters are garish indeed:

Nearly every regulatory institution in Trumpville tasked with monitoring the financial system is now run by someone who once profited from bending or breaking its rules. Historically, severe financial crises tend to erupt after periods of lax oversight and loose banking regulations. By filling America’s key institutions with representatives of just such negligence, Trump has effectively hired a team of financial arsonists.

Naturally, Wall Street views Trump’s chosen ones with glee. Amid the present financial euphoria of the stock market, big bank stock prices have soared.  But one thing is certain: when the next crisis comes, it will leave the last meltdown in the shade because our financial system is, at its core, unreformed and without adult supervision. Banks not only remain too big to fail but are still growing, while this government pushes policies guaranteed to put us all at risk again.

There’s a pattern to this: first, there’s a crash; then comes a period of remorse and talk of reform; and eventually comes the great forgetting. As time passes, markets rise, greed becomes good, and Wall Street begins to champion more deregulation. The government attracts deregulatory enthusiasts and then, of course, there’s another crash, millions suffer, and remorse returns.

Ominously, we’re now in the deregulation stage following the bull run. We know what comes next, just not when. Count on one thing: it won’t be pretty.

Further to my recent article ‘Bond bear due for hibernation in 2018?’, my partner Cory Venable has prepared this insightful chart of 10-year US Treasury yield cycles since 1993.

While the overall trend has been lower (solid purple line) throughout, the latter part of each economic expansion(red arrows) has culminated in stock market euphoria and a consensus expectation for rising inflation and interest rate hikes.  This has prompted Treasury bonds to be sold and their yields to jump 65%, 72%, and most recently 106%, before higher interest costs–across the credit spectrum–affect abrupt monetary tightening on a heavily indebted world.  Lower disposable cash flows force spending to falter, job losses, defaults, a liquidity crunch, and the economy to weaken.

At that point the cumulative weight of debt–which has risen higher and higher each cycle–magnifies the financial stress, intensifies the slowdown, and prompts a rush back to the most liquid ‘safe haven’ assets like treasuries, pushing their prices up and yields lower again, while risky assets are liquidated.  Rinse and repeat.

Yields may rise a bit further this time (back to resistance purple line above?), but the pieces are already in place for the next cash crunch phase any day here.