The Fall of Genghis Khan 2.0

  • Granddaddy Khan’s Soft Side: Hey, you don’t have to condone his activities to be impressed by his mojo…
  • The Fall of Genghis Khan 2.0: Meet the man Stockman calls the “greatest empire builder since Genghis Khan”… and see why he’s on the verge of collapse…
  • The Great Freight Fallout: “A 40+ year veteran of the road told him he had never seen it this bad.”
  • How to “Intertemporally Smooth” an Economy: Why central bankers come up with bizarre words to describe simple concepts… and more!

Genghis Khan, without condoning his atrocities, is surely one of history’s most fascinating figures.


Apparently, his first recorded kill happened when he was only child… when he slayed his half-brother, bad-luck Bekhter.

Little Genghis killed him, in pure Genghis Khan fashion, for not sharing his food.

Then Genghis went on to become, as you know, the most successful (“successful” probably isn’t the best word, but I’m going with it) biological father in human history — with reportedly over 16 million descendents in Central Asia.

Another interesting fact…

As far as the deadliest wars in history go, The Mongol Conquests come in close second to WWII. Mind you, this happened 700 years earlier — when the world’s population was one-fifth what it was in 1945.

Yikes.

On the other hand, Granddaddy Khan did have a soft side. He exempted the poor and clergy from taxes, encouraged widespread literacy and established free religion. For this reason, many flocked to his empire willingly, long before he had a chance to conquer, terrorize and pillage their villages.

How nice.

If you’re a history buff, you might be all-too familiar with the man they nicknamed ‘Jebe.’ But how much, we ask, do you know about old Khan’s successor?


He’s a man who David Stockman, the ultimate Washington insider turned iconoclast, says is “surely the greatest empire builder since Genghis Khan.”

To give you a few hints…

He doesn’t have nearly as many children as Khan, of course… he didn’t kill his half-brother when he was a kid (at least, this wasn’t mentioned in his biography) …nor has he ever run ripshod over any women or children…

But he is one of America’s most admired empire rulers (AKA retailers).

Unfortunately for him, just as the Mongol Empire fell after a period of seeming invincibility, today’s ‘unassailable’ empire, says Stockman, is “on the verge of a downward spiral.”

His empire, Stockman says, is “in the nature of financial rigor mortis — the final spasm of the robo-traders and the fast money crowd chasing one of the greatest bubbles still standing in the casino.”

And what’s crazy is nobody suspects a thing.

OK. Take a wild guess who this man is. We’ll give you a second to think and come back to it in a moment.

For now, let’s take a quick message from the mailbag…

“Hi Chris,”
one reader from our mailbag wrote earlier this month. “Been reading for a few years now, started back when gunpowder was in the title.

[If you haven’t been with us for as long, our reader is referring to a couple years back when this letter was called Whiskey and Gunpowder.]

“With all that is going on the past few days in the markets and around the world, some comments my eldest son made over the weekend have got me thinking.

“He is a conductor for a major railroad (BNSF) and is based in Denver. He said that the railroad usually has 550 lines (80-100 cars per line) of coal cars on the road at any time. Last Friday they had only 260 lines moving in the system. Knowing the administration’s antipathy towards coal, this is not surprising. They have been moving line after line of coal and oil cars onto a semi abandoned line here in my county. Looks like 15 miles of cars so far.

“The thing that was surprising is that there were only three mixed freight trains moving through Colorado when there is usually 12-15 each day. He also said that this time of year they are usually moving whole trainloads of lumber and other building materials. This winter he has seen only the odd car, never several tied together or a whole line of them.

“A 40+ year veteran of the road told him he had never seen it this bad. Every time this happens it seems to be a precursor to something big happening. My son said that this happened during the early spring of 2008. The veteran told him that a slowdown like this happens a few months before some economic or political shock that takes years from which to recover. The layoffs and furloughs on the railroads seem to be under the radar for most analysts.

“As from my title, is this an early warning of something big?

“Just thought I would give you a perspective from the county.

“Keep it up!”


Thanks for writing in. You could be onto something here. And if so, you can chalk it up to good old “intertemporal smoothing.”

[Interte… smoo… Wait… what?]

William White, former chief economist at the Bank for International Settlements used the term at the Davos conference last week to describe our current economic quandary.

White, in case you don’t know, is currently head of the Organization for Economic Cooperation and Development (OECD). He’s also a member of the secret central banker’s Scrabble game where they take turns arming one another with bewildering phrases with which to confuse the masses.

[“There’s one rule and one rule only,” Big Beard Bernank says to his fellow knights at the round table, “The more eyes that glaze, the better it plays!”]

To White’s credit, he was one of a few voices who warned a crisis was brewing pre-housing bust. And, of course, he was right.

He was also one of a few, once again, unafraid to be the bearer of bad news at the elite’s hobnob hotspot: “The situation,” White told the Telegraph at Davos, “is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up.”

Uh-oh.

“Mr. White,” the Telegraph piece elaborates, presumably to make sure it was hearing him correctly, “said QE and easy-money policies by the U.S. Federal Reserve and its peers have had the effect of bringing spending forward from the future in what is known as ‘inter-temporal smoothing.’ It becomes a toxic addiction over time and ultimately loses traction. In the end, the future catches up with you.”


“You gotta love the gobbledygook these guys come up with to describe a simple concept,”
David Gonigam of 5 Min. Forecast fame wrote last Friday.

What they call ‘intertemporal smoothing’ is really, says Dave, a ridiculous way of saying: “Central bank money printing has the effect of pulling demand forward from the future.”

And how, you ask, might this relate to a freight train slowdown in Denver?

As a result of all this ‘intertemporal smoothing,’ David Stockman chimes in,
“The boom of the last two decades essentially stole output from many years into the future.

“There has been so much overinvestment in energy, mining, materials processing, manufacturing and warehousing that nothing new will be built for years to come.

“So,” Stockman explains, “there will be a severe curtailment in the production of mining and construction equipment, oil field drilling rigs, heavy trucks and rail cars, bulk carriers and containerships, materials-handling machinery and warehouse rigging, machine tools and chemical processing equipment and much, much more.

“Consequently,” he warns, “the world economy is actually going to shrink for the first time since the 1930s.”

And it looks as if — some… some — of the global elites are waking up from their Keynesian spend it even if you can’t fantasies.

Unfortunately, a little too late. Aside from the falling freight volumes, there’s another canary in the coalmine…


The next domino to fall, according to Stockman, could be in the last place people expect…

That’s right.

As mentioned, it’ll happen in the ballroom of the great gilded fortress of modern-day Genghis. Even with doom on the horizon, though, the rollicking party keeps rolling. And everyone keeps hooping, hollering and dancing. All too afraid to be the first to point out that ceiling plaster keeps falling in their Dom Perignon.

“One of America’s most admired retailers is teetering on the edge of disaster,” Stockman says. “But don’t expect anyone to realize it.

“Customers are too busy praising its prices and convenience to wonder how it can accomplish this profitably. The financial press is too busy fawning over its CEO to take a closer look at his books. And most Wall Street analysts are simply so smitten with the company’s story that they’re completely ignoring what should be flashy warning signs.

“But make no mistake,” he says, “this company is on the verge of a downward spiral. It could start as soon as the company reports its earnings on Jan. 28. Even if it does manage to paper over its problems for another quarter, its fall is inevitable.”

[Ed. note: According to Stockman, this well-admired company could plunge as much as 70% in 2016. And it could all begin as soon as Jan. 28. That’s this Thursday. If it happens, it’s going to be an embarrassing day for the skinny-dippers when the tide turns in. For a limited time, David’s willing to — this time — show you how to play this one for FREE, for a shot of 300% or more. That’s right. He’s offering a FREE trial of his prized newsletter — David Stockman’s Bubble Finance Trader. Sign up today, you won’t pay a penny for an entire month. Cancel anytime — fee free. You have a couple days to catch up before Thursday. Claim your free trial before the kingdom tumbles: Click here for all the details before it’s too late.]

Not convinced? Well, it gets worse. See below for David’s latest piece on why “BTFD” (Buy The F***** Dip) is no longer a solid strategy.

Read on…


Why Dip Buyers Will Get Clobbered
By David Stockman

 

As of June 2008 no Wall Street banking house was predicting a recession, yet by then the Great Recession — the worst economic downturn since the 1930s — was already six months old, as per the NBER’s subsequent official reckoning.

Actually, it was already several years old if you concede that the phony housing boom of 2005-2007 was generating merely transient “statistical” GDP, not permanent gains in main street wealth. Even the movie houses showing “The Big Short” have some pretty palpable reminders on that point — not the least being the strip club dancer who owned 5 residential properties, with two adjustable rate mortgages on each.

In fact, by then main street America was crawling with strippers. That is, equity strippers who were repeatedly doing “cash out” refinancings in order to generate between $20,000 and $100,000 or more of mortgage proceeds to spend on vacations, cars, man caves, aspirational leather goods, shoes and apparel, among much else.

At the peak in 2006-2007, upwards of 10% of personal consumption expenditures were accounted for by MEW (mortgage equity withdrawal). The utter unsustainability of that kind of Potemkin prosperity goes without saying, but the point here is that it was no deep dark secret buried in the economic entrails.

In fact, Chairman Greenspan went to great lengths to publicize the facts of MEW on an up-to-date basis. But he wasn’t trying to warn that the end was near. Unaccountably, he and his Wall Street acolytes concluded that the US economy had become virtually recession proof because of the extra firepower being accorded to household consumption by MEW!

LFTChart2

In short, the economic booby trap of MEW was hiding in plain sight and so was the Great Recession. Yet there was nothing at all unusual about the 2008 recession call miss.

Wall Street never predicts a recession. And that’s basically why the stock market goes up for 5-7 years on a slow escalator, and then plunges down an elevator shaft during several quarters of violent after-the-fact retraction when an economic and profits downturn has already arrived.

Needless to say, there are plenty of economic booby traps hiding in plain sight this time, too. Yet the sell side was out over the weekend with noisy chatter about stocks now being on sale at a discount, and that selective buying of the dip is once again in order.

According to these Keynesian Cool-Aid drinkers, the US economy is doing “just fine” because job growth is robust, real wages are rising and the consumer is fixing to commence a shopping spree at any moment now. And since stocks have purportedly never gone deep into bear market in the absence of a recession, what’s to worry?

How about the fact that there are booby traps like MEW lurking in plain sight everywhere—both at home and abroad? For example, consider the allegedly robust condition of auto sales.

During the last 12 months, retail sales of autos were up 6.1% or by $65 billion. But then again, auto loans paper outstanding was up by nearly $90 billion!

That’s right. Auto lenders — especially the legions of subprime nonbank operations that have sprung up with junk bond financing — have been extending credit to anyone who can fog a rear view mirror. Indeed, since mid-2010 when the auto recovery incepted, auto credit outstanding is up by $340 billion or by 90% of the $375 billion gain in auto sales.

LFTChart2

Needless to say, virtually 100% financing of an auto sales boom is now more sustainable than was the MEW financing of household consumption last time around.

Regards,

David Stockman

[Chris’ note: Again, Stockman’s offering up a FREE trial to his service. Cancel anytime. No strings. No catches. Click here to sign up and learn how to play the fall of the latest empire.]

Until tomorrow,

Chris Campbell
Managing editor, Laissez Faire Today

Have something to say? Say it! Chris@lfb.org.

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