Post: #1

For the past few years, since discovering him, each December, I have eagerly awaited David Collum's Year in Review. I just got through reading this year's offering (91 pages as a PDF file, including 514 hyper-linked footnotes), and as always, it doesn't disappoint.

David Collum is a chemistry and biology professor at Cornell University. He describes himself as Paris Hilton of finance, yet his newsletters generate up to 100,000 clicks. David provides an astounding amount of information (as seen by the topics covered below below), insightful analysis, and a wry wit. I'd highly recommend reading the entire thing.

Here are the topics covered:

Part 1:
Background: The Author
Content
Sources and the Fourth Estate
On Conspiracy Theorizing
Investing
The Economy
Bending, Breaking, and Broken Markets
Precious Metals
Energy
Personal Debt, Savings, and Retirement
States and Municipalities
The Bond Caldera
Argentina Versus the Bond Vultures
Inflation Versus Deflation

Part 2:
Wealth Disparity
Banks and Bankers
AIG
The Federal Reserve
Baptists
Bootleggers
Europe
Asia
China
Japan
ISIS
Russia
Ebola
Government
Clintons
Barack Obama
IRS Scandal Part Deux
Bundy Ranch and Ferguson
Militarization of Police
Civil Forfeiture
Civil Liberties
Conclusion
Books
Acknowledgments

Part 3:

Links

Post: #2

"David Collum is a chemistry and biology professor at Cornell University. He describes himself as Paris Hilton of finance"

That's badass! Legitimately smart people (not just degree hounds) are able to apply critical thinking across a variety of subjects. This is a testament to his intellect and I will definitely check it out.

Post: #3

This is awesome!

I doubt I'll read the whole thing, but I'll read a few sections of interest. He's surprisingly not PC at all, and seems to be pretty open minded, not to mention pretty damn funny:

Quote:The idea of pressuring Russia with the vicissitudes in the marketplace strikes me as silly. I've watched the dash-cams; those guys are tough. Russians survived cannibalism in the Siege of Leningrad (1941–44). Our idea of suffering is camping out overnight at Target for iPhones, which are for some reason perceived to be in life-altering short supply.

Post: #4

I love it when he uses the quotes of various politicians, economists and others to roast themselves. There are some genuinely laugh out loud moments. Last year, he had a whole section just consisting of Paul Krugman quotes.

He should be doing interviews around about now, so those should start appearing on Youtube soon. He mentioned in his newsletter that he has just done one for RT, I think. He has done them on RT in previous years:

Post: #5

Fantastic article, thanks for posting. I'll quote a few of my favorite parts here:

Quote:Personal savings and Retirement

Every year I write about the dire situation in personal savings and retirement.This is as painful as watching a Nicholas Cage movie. I will keep it short this year because nothing has changed, it's not gonna change, and I'm starting to sound like Crazy Eddie. We have a large group of people who will spend their twilight years marinating in a grinding poverty that is altogether unfamiliar. After years of not saving—regardless of why or whose fault it might be—they are heading down the Niagara River in a barrel: they are going over the falls.

Let's reconsider a few numbers. The median retirement savings is $2,000. That is not a typo: 200 rolls of quarters. Charles Schwab's numbers are more dire. One-third of the boomers over 65 still have mortgages. Those with equity in their houses are being pushed in to treacherous reverse mortgages. Fidelity estimates that 48% of boomers report that they are not on track to cover the basics in retirement. Most of the others suffer self-delusion. It is said the average retirement age is 62, which is way too low. You eat what you kill. Few have created enough wealth to live another 35 years on the fruits of their labor. Boomers looking to retire early from a good job intending to pick up money on the side should reconsider.

Let's take a deep breath and push forward. More than 30% of all new loans are subprime, which suggests that the debtors can't really afford the payments. Credit cards issued to subprime borrowers rose 39% in
the first quarter alone. HELOCs are on the rise again. An estimated 60% of working-age Americans have less than $25,000 saved. One in six Americans depends on food stamps.

Quote:Wealth Disparity

“Printing money out of thin air does not increase wealth, it only increases claims on existing wealth.” ~Charles Hugh Smith

In the olden days, claims that the rich were getting richer and the poor were getting poorer were a thinly veiled rallying cry for class warfare. Thomas Sowell reminds us that a growing economy lifts all boats, and
those at the bottom strata percolate up generationally from garment worker to bookkeeper to doctors and lawyers (well, maybe just doctors). It feels different now, and the angst over wealth disparity resonates with growing numbers of adherents. It is no longer just the dregs of society but the increasingly struggling middle class, or what I prefer to call “the median class.”

“Only the wealthy can afford a middle-class lifestyle.” ~Zero Hedge

The contrasts are stunning. While 53% of adults earn less than $30,000 per year, the rentier class—big-gun money managers—are muffin topping out at $3 billion. David Tepper earned almost $500K per hour. Stevie Cohen ranked second in earnings as a full-time defendant for insider trading. The median retirement savings of a working-age adult is $2,000, yet we've got folks with the cash to pay for brain surgery on goldfish, $60 million Steve Martin–like balloon art, $500K watches, and $2,000 glamburgers ("gluttonburgers”).

A full 47% of millennials are using >50% of their paychecks to pay down debt. Twenty percent of US families have no employed family members.This is a problem demanding solutions for which none are obvious. The elite billionaire society, Beta Kappa Phi, is dominated by the rentiers rather than wealth-creating capitalists. This is not about Bill Gates or Michael Dell. Wealth inequality is about the inordinately high pay for those who don't actually create wealth and the inordinately low pay for those whose toils do. We have reached the apex of another gilded age.

Quote:Civil Forfeiture

“Normal people do not carry that kind of cash.” ~Police officer justifying a civil forfeiture

Of course, the police have plenty of nonviolent tactics. Enter the notion of civil forfeiture. It takes on a multitude of forms, all sharing the common theme of authorities confiscating money and goods when they suspect nefarious activity.

You read that right: suspect. Laws changed markedly after 9/11 under the Patriot Act. Police can now legally confiscate money before trial and... wait for it... keep it as a slush fund. Years ago, California got into a pickle when authorities got caught confiscating the contents of dormant safe deposit boxes that weren't dormant and whose contents were sold off without an inventory.

We now have traffic violations leading to the confiscation of cash because its quantities are deemed suspiciously large. A federal judge called authorities' attempt to conceal $13 million from a gambler as “abhorrent.”

If you think these are urban legends, think again. Forbes published a story about 639 civil forfeitures. In only 20% of the cases was there
any evidence of possibly illegal activity. The majority, however, went unchallenged because of the court costs and sense of futility. In instances in which there was no evidence of crime committed, the authorities rarely offered to give the money back. A must-see John Oliver rant does a fine job of defining the problem. I suspect that those failing to achieve satisfaction in the courts might have some pretty
dark thoughts. This video of a prosecutor gleefully describing how to maximize the take from civil forfeiture generates them in me. I better stop here.

Quote:Conclusion

“I’m tired of being outraged”~Ben Hunt, Salient Partners

I envision German Jews sitting around the dinner table in the 1930's discus sing risk. Among those who had the opportunity to mitigate the risk—certainly many did not—some chose to do so, and others bet that the threat would pass. It didn't, and they paid dearly. Next time you hear a glib intellectual dismissing risk-averse peasants—intellectual children—because the risk is low or because the worst case scenario failed to materialize, I would understand if you planted one right in their chops and muttered “you smug bastard.” There is no “risk” of a 10% stock market correction because there are no consequences except to the blokes who live (and die) by leverage. Risk is not about what happens but what could happen and what the consequences could be. Russian Roulette is statistically a 6:1 winner...until you lose.

In 2002 I wrote a close friend at Goldman (Rick Sherlund) of the risk of a banking collapse. I described the risk of subprime mortgages and possible collapse of Fannie Mae, Freddie Mac, GE Capital, and the entire banking system. Yes. It did collapse, only to be resurrected by central bankers willing to do things to sheep (us) that would make Romans blush. Some, central bankers included, say nobody saw it coming, which is obviously wrong because I was merely parroting what I had read. Thousands saw it coming, and billions didn't. Some would say I was dead wrong in my warning to Rick because my call was too early. Bullshit. It was a great call given the consequences of the collapse.

This year has been all about risk—existential risk. Some of it seemed to dissipate and some lingers. Ebola was mathematically very serious—Russian Roulette—but western civilization has dodged that bullet for now. Market valuations remain risky—regression to the mean could easily provide a 50% haircut and more if we observe regression through the mean. This has not come to pass, but the risk is very real. Those who seek risk in markets will eventually find it.

I avoided ranting too much about unfunded liabilities and pension stresses this year not because the risks have dissipated—they have not—but because nothing has happened yet. I seriously doubt, however, that the pension problem will be a dud. Whether we witness a massive corrective action—a come-to-Zeus moment—or rot spread over decades does not dissuade me from believing we will experience an historic purging of debt and unfullfillable commitments.

Cold War 2.0 came out of nowhere and has the potential of, at a minimum, rotting our national balance sheet and, in the worst case scenario, turning into a conflagration of a higher order. Oh surely that would never happen again, right? The House of Commons met 14 days before World War I broke out. There is no mention in the minutes discussing the risk of armed conflict. The history books are littered with destructive human folly—men (and now women) attempting to be important—and such folly will continue unabated. Folks like Niall Ferguson who study empires in decline think the US Empire is waning. This essay by Soviet dissident Dmitry Orlov is a particularly harsh view. A common theme in these discourses is that declining empires tend to respond violently at home and abroad.

We can see it already. Loss of civil liberties, militarization of the police force, and civil forfeiture are profound concerns to me. I get a little over-protective of what's mine. Can you recall an instance in which such a path was taken and then society backed out uneventfully? I can't. Richard Clarke, Bush's National Coordinator for Security, closed his tell-all book Against All Enemies by suggesting that the enemy is within.

Ferguson, Missouri is emblematic of both hope and risk. I see the Ferguson unrest as an outgrowth of Occupy Wall Street. The folks on the street are getting madder at the current imbalances. Their lot in life is getting worse for reasons that are too complex for me to fully grasp. What they have figured out, however, is that they have power. “Hands up” and “Can't breath” have become rallying cries for pissed off folks and not just inner city dwellers. With the advent of social media and cell phones, a group of people who have never met can assemble spontaneously to shut down the system. Society is developing unprecedented collective neural pathways to express discontent. Don't underestimate the intensity and frequency of such events going forward, because there are a lot of people with a lot of things to be pissed at.

Of course, despite the authorities' best efforts to keep everything orderly, we know how this global Game of Tetris ends:

“Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out.” ~Wikipedia on Tetris