Regular readers are well aware that residents are rushing out of California in droves for many reason, least of which is the high cost of living. For those older California residents that choose to stay however because they simply can't uproot their lives and start "fresh" somewhere else, the reality is even more gruesome as they have no choice but to continue working into their retirement years. More than 740,000 Californians between the ages 65 and 74 are still employed or looking for work the Sacramento Bee reports, and the reasons are largely attributable to money.
As the Sacramento Bee reports, more than 740,000 California residents between ages 65 and 74 are employed or looking for work, roughly double the number from 15 years ago, according to a Sacramento Bee review of the latest census data.
Much of that growth reflects a swell of baby boomers entering retirement age. But the proportion of California seniors between ages 65 and 74 still working or looking for work also has risen, going from 20 percent in 2000 to 26 percent in 2014.
Californians are working longer for a number of reasons. Some do not have enough money to retire or are among a growing number of seniors living in poverty. Others are waiting to collect their full allotment of Social Security payments as the federal retirement age gradually rises from 65 to 67. Many are simply in good health and want to keep working as life spans increase.
The percent of Californians ages 65-69 who are still working or looking for work has increased dramatically since 1990, and still remains well over 30%. The percent of residents between 70-74 who are still working or looking for work has trended up since 1990 as well, although much more gradually, and remains just under 20%.
Not surprisingly, seniors in the Bay Area (due to the tech bubble that we have covered extensively) and Los Angeles metro area are most likely to work past 65.
Perhaps the most interesting thing from the Bee's report is that the jobs that seniors are holding are traditionally higher paying, which implies the cost of living is so horrendous in California that literally everyone is struggling to make ends meet, let alone get ahead in order to retire.
However, older workers are still performing jobs that younger workers are more likely to perform, which again is a red flag that older workers are doing anything they can in order to continue to earn money in what is considered retirement age. It is notable that these types of jobs are lower paying jobs, which one can infer the severity of older workers needs to make ends meet.
The fiscal situation for these seniors is about to get much, much worse. With Governor Brown signing the new minimum wage bill, that even he admitted makes no sense economically, one can rest assured that those increased labor costs will indeed be passed on to Californians in one form or another. Also, don't forget that tax increases are looming for the the Golden State. Recall that Cali had missed projected tax revenues by nearly $1 billion through the first four months of the year - those revenues will have to be replaced somehow, and with residents leaving in droves, those that remain will have to shoulder the burden.
That said, at least the above example provides a vivid demonstration why the US labor participation rate is crashing as more and more younger workers are unable to develop work careers as increasingly more aged workers remain stuck in their positions thus bottlenecking the natural pipeline of US jobs, and forcing millions of younger Americans, for whose meager skills there is no demand, to stay in school.
Meanwhile, the number of American workers aged 55 and older enjoying Obama's "recovery" have never been greater...
For all the scaremongering and threats of an imminent financial apocalypse should Brexit win, including dire forecasts from the likes of George Soros, the Bank of England, David Cameron (who even invoked war), and even Jacob Rothschild, something "unexpected" happened yesterday: the UK was the best performing European market following the Brexit outcome.
This outcome was just as we expected three days ago for reasons that we penned in "Is Soros Wrong", where we said "in a world in which central banks rush to devalue their currency at any means necessary just to gain a modest competitive advantage in global trade wars, a GBP collapse is precisely what the BOE should want, if it means kickstarting the UK economy."
On Friday, the market started to price it in too, and in the process revealed that the biggest sovereign losers from Brexit will not be the UK but Europe.
Not only, though. Because as we noted yesterday in "Who Are The Biggest Losers From Brexit?", there is an even bigger loser than the EU: Britain and Europe's wealthiest people.
Britain’s 15 wealthiest citizens had $5.5 billion erased from their collective fortune Friday after the country voted to leave the European Union. Britain’s richest person, Gerald Grosvenor, led the decline with a loss of $1 billion, according to the Bloomberg Billionaires Index. He was followed by Topshop owner Philip Green, fellow land baron Charles Cadogan and Bruno Schroder, majority shareholder of money manager Schroders Plc.
It wasn't just Britain: as Bloomberg added overnight, the world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2 percent of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.
Ironically, it turns out that when George Soros threatened "The Brexit crash will make all of you poorer – be warned", what he really meant is "it will make me poorer." And yes, George, the people were warned which is why they voted the way they did.
Submitted by Michael Krieger of Liberty BlitzKrieg
Brexit = Death of the Technocrats
My political opinions lean more and more to Anarchy (philosophically understood, meaning abolition of control not whiskered men with bombs) … the most improper job of any man, even saints (who at any rate were at least unwilling to take it on), is bossing other men. Not one in a million is fit for it, and least of all those who seek the opportunity.
– J. R. R. Tolkien
What transpired last night in the United Kingdom represented one of the most extraordinary expressions of democracy in my lifetime. When faced with an event of such monumental significance, it’s difficult to pick any particular direction for a post like this. I have so many thoughts running through my mind and so many angles I could potentially address, it’s simply impossible to do them all justice. As such, I’ve decided to focus on one very meaningful implication of Brexit: death of the technocrats.
To start, I want to dive into one of the more interesting controversies from the weeks leading up to the vote. What I’m referring to is the statement made by Vote Leave’s Michael Grove regarding “experts.”
From the Telegraph:
On Friday night, during an interview on Sky News about the EU, Faisal Islam challenged the Justice Secretary to name a single independent economic authority that thought Brexit was a good idea. Mr Gove’s response was defiant.
“I’m glad these organizations aren’t on my side,” he said. “I think people in this country have had enough of experts.”
Mr Islam spluttered incredulously. People in this country, he repeated, “have had enough of experts?”
Mr Gove stood his ground. Yes, he said, people in this country had had enough of experts “saying that they know what is best”. Mr Gove had “faith in the British people”. The so-called experts, clearly, did not.
For his words, Mr. Gove was attacked relentlessly. His language was described as dangerous, and he was scolded for its supposed anti-intellectualism. The “very smart people” issuing these condemnations did so in their typical self-satisfied, smug manner. Nonetheless, Michael Gove was absolutely correct in his assessment, and in this post I will detail precisely why.
First of all, what is an “expert?” From what I can gather this term is bestowed upon someone with an advanced degree who has successfully maneuvered him or herself into a position of prominence within government, a think tank, central banking or academia.
As someone who worked on Wall Street for a decade, I was constantly surrounded by people with advanced degrees from the most prestigious institutions. I also know that your degree means absolutely nothing the moment you walk in that door for the first day of work. You enter a place filled with people who have battling it out for years if not decades in their profession of choice, and the only thing that matters now is performance. If you don’t perform you’re gone, and nobody’s gonna care about the long sting of letters next to your name.
The world of politics, government and central banking famously and problematically does not work this way. Look around you at all the discredited “thought leaders” who continue to be paraded around on television, and who still advise Presidents and Prime Ministers the world over. In the aftermath of the 2008 financial crisis no changing of the guard was permitted. Sure we were given a fresh face with Barack Obama, but his advisers didn’t change. He immediately hired both Larry Summers and Timothy Geithner, and that’s the moment I knew he was a gigantic fraud. To summarize, the exact same people who ruined the world bailed themselves out, avoided all accountability and continue to call the shots. These are the men and women we know as “the experts.”
The point isn’t to say that having an advanced degree in a particular field of study doesn’t make an individual especially useful to society. It does. The issue here is accountability. If you want to go around calling yourself an expert and demanding that your views be implemented across a given civilization, you had better do a good job. If you do a poor job, you should be immediately replaced with someone who has a different perspective. After all, there are plenty of experts out there to choose from. Unfortunately, our societies tend to get stuck with egomaniacal, incompetent, but politically savvy experts who never go away. They can blow up the world a million times over and still somehow survive to call the shots. This is the main reason the world is in the state it’s in, and it’s the reason reactionary forces are rising across the globe.
The Brexit vote in itself proves the point. Sure, David Cameron has announced his intention to resign, but where are the the resignations of EU technocrats? If anyone was discredited by this vote it’s the leadership of the EU, but they aren’t going anywhere. Why? Because they’re experts, and experts stay around forever. Like Larry Summers, bank executives and neocon war mongers, these people never suffer the consequences of their actions and thus remain free to run around endlessly destroying the world from their unassailable perches of power.
That’s the point. Being an expert does not make you infallible. Your credentials should certainly offer you a seat at the policy making table, but from that moment on you had better demonstrate performance. It’s the same way with a corporate job. The resume gets you in the door, but your production day in and day out keeps you in the seat.
The status quo doesn’t see things this way. To the status quo technocrat, this is a lifelong position. They consider themselves to be the wise indispensable elders required to steer the world in the appropriate direction irrespective of any and all calamities they cause along the way. Unfortunately for us, history shows us that the biggest disasters happen precisely when you combine such expert arrogance with unbridled power.
One of the best modern examples of this relates to the tale of the 1990’s mega hedge fund Long Term Capital Management (LTCM). A story that was perfectly captured in the excellent book by Roger Lowenstein, When Genius Failed.
The leadership of LTCM was hailed as the best of the best from the beginning and expectations were high. It’s principals consisted of not only Wall Street veterans but also several former university professors, including two Nobel Prize-winning economists. Yet, what transpired after only five years in operation was one of the most spectacular failures of modern times. A train wreck so large and so completely out of control, it required a Federal Reserve led bailout.
What happened with LTCM is happening right now across the political and economic spheres in virtually all nations. You have a collection of self-assured, arrogant “experts” running the world into the ground with their policies. As I said earlier, I have no problem with experts. I have a problem when experts are permitted to operate with zero accountability. The EU represents such technocratic immunity better than any other institution in the Western world. The British people recognized that they couldn’t remove these technocrats from power from within (something proven once and for all by the fact no EU leaders have resigned), so they decided to leave. I commend that choice and I think the sooner the status quo is disposed of, the greater the likelihood for a positive longterm outcome.
As I warned last year in my post, A Message to Europe – Prepare for Nationalism:
Actions have consequences, and people can only be pushed so far before they snap. I believe the Paris terror attacks will be a major catalyst that will ultimately usher in nationalist type governments in many parts of Europe, culminating in an end of the EU as we know it and a return to true nation-states. Although I think a return to regional government and democracy is what Europeans need and deserve, the way in which it will come about, and the types of governments we could see emerge, are unlikely to be particularly enlightened or democratic after the dust has settled.
My thoughts and prayers go out to all the victims of these horrific events, but the Paris attacks didn’t happen in a vacuum. The people of Europe have already become increasingly resentful against the EU, something which is not debatable at this point. This accurate perception of an undemocratic, technocratic Brussels-led EU dictatorship was further solidified earlier this year after the Greek people went to the polls and voted for one thing, only to be instructed that their vote doesn’t actually matter.
Actions have consequences, and we’ve now witnessed the first of these consequences. The “experts” have warned us of the disaster to befall Great Britain should it Brexit. Well we now have front row seats from which to observe the outcome of the UK versus large economies that remain in the euro such as France, Spain and Italy. As usual, I suspect the experts will be wrong.
For more, see:
- It’s Not Just the UK – Widespread Support for EU Referendums Seen Across the Continent
- If the British Vote for Brexit, Will They Get the Greek Treatment?
- German Study Proves It – 95% of Greek “Bailout” Money Went to the Banks
- Does the Migrant Crisis Represent the End of the European Union?
- A Message to Europe – Prepare for Nationalism
The world of central banking relies on transferring vast amounts of information along controlled and secure messaging lines, around 2 million per day between roughly 7,000 institutions. The system of connections to and from central banks in Asia, Russia, China, Africa, and the Americas is known as SWIFT (The Society for Worldwide Interbank Financial Telecommunication). SWIFT provides a means for sending messages between the parties that have access to it. Each party is responsible for providing security measures before accessing the SWIFT network.
On March 7, 2016 Reuters reported the central bank for Bangladesh stated it discovered unauthorized withdrawals from its account at the Federal Reserve Bank of New York (FRBNY). The amount of the unauthorized transfer has been reported to be USD $951 million. The World Bank database shows Bangladesh holds just shy of USD $28 billion in foreign exchange reserves on its books, an amount that has tripled since 2011.
Around the middle of April reports appeared which stated that roughly USD $81 million remained uncovered. It still remains uncovered as of this writing. What also remains uncovered is the truth of what happened. We have yet to learn if someone hacked into the SWIFT system from outside the Bangladesh central bank headquarters or if the unauthorized transaction was executed as an "inside job". Sources speaking with Zero Hedge control cyber security operations for international companies have said it would appear the complexity of the steps necessary to execute a transaction across the SWIFT system would require knowledge from someone who regularly interacts with the SWIFT system.
What's more, the SWIFT hack was not even the main objective of the group, they merely stumbled upon an entry point while monitoring the system for message flows. Security in the cyber world is fragile, as evidenced by the uniqueness of the SWIFT system and the fact that entry to the system was not the main purpose of the hackers.
Symantec said in a blog post that the SWIFT attack shared code and tools similar to those used to attack SONY's systems in 2014. When systems are compromised, entire rebuilds are necessary to ensure a vacuum-type environment going forward. As the US Dept. of Homeland Security Chief said at a Council on Foreign Relations Q&A, we're paraphrasing, "we assume every system is compromised and we focus primarily on the offensive". What he likely means is that the best defense is a good offense, take out the other guys' system before he gets into yours. This view could be damaging to FireEye should this topic find itself on the mainstream stage.
FireEye bills its product as one that can be installed on an existing system and secure that system, meaning that beyond a doubt the FireEye product is able to clean and sanitize a system that was once open to be compromised, a defensive system. One may be well suited to ponder: at what point is a system too complex for FireEye's product to just be installed and trusted? Mandiant, the InfoSec arm of FireEye has been hired to investigate the Bangladesh hack and it will be interesting to see if the company pushes to clean the current SWIFT system or agrees to go along with a completely new platform.
The SWIFT rebuild will likely require the insights of an outlet such as Hyper Ledger, run by longtime Zero Hedge CDS and commodity trading icorn, Blythe Masters. Hyper Ledger works with a consortium of organizations and corporations tasked with developing systems to offer protection for messages sent between the worlds central banks, which will be based on blockchain technology. A rebuild is still likely 2 years away according to well placed Zero Hedge sources, which opens new concerns about the current integrity of the SWIFT platform and what problems may be lurking within it that we have yet to discover.
One thing is certain: with "big bank" support behind both blockchain and Masters' startup, it is only a matter of time before SWIFT is phased out, most likely in some major "scandal" that discredits the way US Dollars have been transferred around the globe for decades.
The question that remains unanswered currently is: Who still has access to the central banking SWIFT system and is capable, right now, of monitoring message flow between institutions? Something to keep in mind as the EU experiment unravels.
Starting off the year, Goldman was prodigiously optimistic, bullish... and dead wrong. Since then the bank has cut its rate hike forecast from 4 to 3 to 2 and, now in the aftermath of Brexit, it has just the excuse to say that "our forecasted path for the funds rate now looks quite unlike any tightening cycle in modern Fed history—one increase, followed by an extended pause, followed by gradual but steady increases over the subsequent three years." Which, quite simply, is another way for Goldman to say it was dead wrong. Again.
Here is how Goldman throws in the towel on the whole rate hike thing.
Tweaking Forecasts Following British Referendum
The decision of voters in the United Kingdom to exit the European Union will begin a lengthy process of negotiations with uncertain effects for both the UK and the rest of Western Europe. The trade linkages between Britain and the US are relatively modest (exports to the UK amount to about 0.7% of US GDP), so even in the event of a meaningful downturn, these spillovers are unlikely to derail US growth. Financial linkages are much tighter, however, and here we have already witnessed meaningful effects: our Financial Conditions Index (FCI) tightened by about 30 basis points (bp) today—enough to subtract around 0.2pp from GDP growth over the next year, if the FCI changes prove persistent.
As a result of the aftershocks of the “leave” vote on US financial conditions, we are downgrading our US growth forecasts for the second half of this year. We now expect GDP growth to average 2.0% in 2H 2016, down from 2.25% previously (see table below). The reduction reflects lower forecasts for business fixed investment spending in the months ahead. At this point we have not changed our forecasts for the unemployment rate or core inflation: we still see the unemployment rate averaging 4.6% in Q4, and core PCE inflation ending the year at +1.7%
A lower baseline outline for the economy as well as risk management considerations are likely to keep the Federal Reserve on hold for longer than we previously expected. Before the British referendum, we saw a 25% chance that the FOMC would raise rates at its July meeting, and a 40% chance that it would hike in September. We now see the odds of a hike next month as less than 5%—it would take a sea change in financial conditions and exceptionally strong economic data for the Fed to act so soon—and the probability of a hike in September of just 25%. Beyond September, we would assign about a 5% probability to a hike in November, and 40% to a hike in December. In other words, we still think the FOMC will raise rates this year, but probably not before December. Our modal expectation has therefore shifted from two rate hikes in 2016 to just one.
With these revisions, our forecasted path for the funds rate now looks quite unlike any tightening cycle in modern Fed history—one increase, followed by an extended pause, followed by gradual but steady increases over the subsequent three years. Although this pattern would be unusual, we continue to see a series of rate increases as more likely than the path for policy rates implied by market pricing. With the economy close to full employment and inflation firming, there will likely come a point at which the desire to support financial conditions and risk management concerns will no longer hold sway.
And in a follow up note released today, Goldman just cut its 2017 UK GDP forecast from 2.0% to 0.2%, as well as predicting a UK recession next year.
The direct effects of reduced access to the Single European Market is the smaller of the two channels. Negotiations on a withdrawal agreement and the separate agreement on the future relationship with the EU are multi-year processes. Some businesses, anticipating those changes, will cancel UK investment. But, in isolation, this does not precipitate a recession. Instead, the larger part of the transmission operates through the effects of uncertainty about what those trading relationships, and the regulatory framework that goes with them, will be. Policy uncertainties are reflected, and perhaps compounded, by changes in the leadership of the UK government and questions about Scottish independence.
We have therefore revised real GDP lower in 2016 by 0.5pp to 1.5%yoy and in 2017 by 1.8pp to 0.2%yoy. We expect a recession – albeit mild by historical standards – in the first half of next year. The weaker outlook will also weigh on the inflation outlook. As we had highlighted in our scenario analysis for a Leave decision, the weaker inflation outlook could be offset by the effects of Sterling depreciation and its impact on import prices. Yet, the latter effect is temporary and Sterling's weakening since the Leave decision has not yet been large enough to threaten an overshooting of the inflation target.
Needless to say, a UK recession means rate cuts, more QE by the BOE, and most importantly, it means no more rate hikes by the Fed, most likely every again. We expect over the next few weeks for Goldman to give up on its "one rate hike" call, followed shortly thereafter by the admission that the next Fed move is a rate cut, just as the market now expects... just as we predicted last summer.