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Pope Francis and Jesus - Radical Reformers

by John Jazwiec

Jesus 

A Jewish man named Jesus walked the earth over 2,000 years ago. While I find any historical account of Jesus - woefully lacking - something like a "Jesus Movement", which grew so fast and became a major religion, must have had a genesis. 

Ask any Christian, who Jesus was and why he was crucified, and you get overly-simplistic answers. 

The truth is likely more complex.

Jesus was most likely a political, rebellious and reformist Jew whose proclamation of the coming kingdom of God was a call for regime change, for ending Roman hegemony over Israel and ending a corrupt and oppressive aristocratic priesthood.

While we don't have an historical account of Jesus, the Gospels, when stripped of their proselytism - attempting to convert people to another religion - and a study of Jerusalem while Jesus was alive, do provide a plausible account. 

Jerusalem and the landmass of today's Israel, was occupied by the Romans. During any occupation, it is quite logical, that religious authorities made accommodations with the Romans, to preserve a faith. 

It is historical fact, that the "temple" was a money raising entity where Romans and Jewish religious leaders both received largess from believers of a faith. So when the Gospels speak of Jesus ridding the temple of "money changers"; it's more a story of hypocrisy than an actual event. 

Jesus - the radical reformer - was part of a larger movement. A movement against Roman occupation, taxes levied upon normal citizens, and  a religious hierarchy that was intertwined with its occupiers. Jesus is thus more of a compilation of a larger movement, than he was a single human being. 

This movement was buttressed by eschatology. Namely that radical reformists would see Roman occupation wither away by sedition (conduct or speech inciting people to rebel against the authority of a state). When Jesus speaks about the end of the world - such as in the Book of Revelations - he is talking about the end of Roman occupation. 

His death - just as many others that met their demise - was for the crime of sedition. The radical reformers were Jews. Not a group of people devising a strategy of forming a new religion. But at some point, the people who didn't get executed, carried on the sedition. And their practices left them outcasts within Judaism. Hence "Christianity" started out as a term for the outcast Jewish radical reformers. 

 

Pope Francis 

The new Pope is also a radical reformer. While he is fighting an uphill battle on homosexuality and divorce/communion, less-noted is his stance on the Church and proselytism.

And we don't need Gospels and connecting the dots from Roman occupation. 

Pope Francis on the Church - 

"And I believe in God, not in a Catholic God, there is no Catholic God". 

“The church sometimes has locked itself up in small things, in small-minded rules". 

"You know what I think about this? Heads of the Church have often been narcissists, flattered and thrilled by their courtiers. The court is the leprosy of the papacy."

"Proselytism is solemn nonsense, it makes no sense. We need to get to know each other, listen to each other and improve our knowledge of the world around us."

I believe Pope Francis's statements are as radical and reformist as Jesus's words were. I also believe this pope is fearless; he breaks all security protocol at his own personal peril.

Now there are only two questions that remain. Will his religious detractors marginalize him? Or will a layman strike him down and make him a martyr?


Speaking Of Deflation: Why You Should Care

by John Jazwiec

While I have been writing about deflation for sometime; I have not really attempted to explain why you should care. So let me try this morning.

On the face of it, deflation, reduces prices and wages. A lot of people don't see the problem in that. If your income goes down by 10% and the rest of goods and services go down by the same percentage, why should you care?

Well, 70% of the US economy is spent on consumption; including housing. Private debt (which doesn't include public debt) stands at about $11 trillion. Mortgages outstanding are about $8 trillion. 

In a period of deflation, wages and pricing both may go down, but private debt does not. If your income goes down by 10%, but your debt payments stay the same, you will not be able to buy as much stuff as you did before. 

Even if you don't have debt, the consumers who have too much debt, reduce consumption. Reduced consumption reduces the income of retailers and producers. The only way they can keep up is to either reduce their employee's wages or terminate their employees.

Why have I been so concerned with deflation? It's because Japan and now Europe are deflationary. Not only can both countries not sell as much goods and services to their people; they can't import as much from the US. In a world-wide economy, deflation then becomes an immanent contagion.

The fear is not if, but when, that a foreign deflation contagion inflicts the US economy. 

At the heart of the deflation problem, is wages and prices fall, but debt remains the same. You might own your house with no debt; but during deflation, buyers of your house need debt to finance buying your house. The debt maybe available; but the buyer knows that debt payments will continue to grow in proportion because their wages go down. And that will slow down or stop the housing market. 

Deflation also slows down other consumables. The reasoning is obvious. People have more economic incentive to put off purchases believing pricing will continue to fall. This is what is called the "deflationary trap".

Inflation is bad; but it has been treated and been kept in check for the last thirty years. 

Deflation? Economists and central banks don't have well-practiced ways to end "deflationary traps". Japan, for instance, has been deflationary for over two decades, and no one has been able to fix it. 

Central banks generally maintain 0 to 2% inflation targets. Well 0% is just a number. 0% inflation only takes a little bit more deflationary force to tip toward negative inflation or deflation.

So central banks should increase inflationary targets to 2 to 3%. 3% inflation holds deflation at bay. And 2% inflation give an economy a 2% cushion on deflation. 

If you don't like this kind of new central bank policy - now that you know why deflation is so bad - do you have a better idea?


The Fog Of The Iraqi War

by John Jazwiec

We ask young and naive men and women, to fight tectonic battles decided by people much older and with more complex agendas. 

The Iraqi War, by almost all accounts, was a wasted effort. In a word: FUBAR.

The naive and young swear an oath to the chain of command. They are foot soldiers. They have very little control over the war; less their own survival. 

The NY Times yesterday, published a blockbuster article, that showed that US troops actually found chemical weapons in Iraq. This article is akin to the Times publishing the Pentagon Papers. 

The cache of chemical weapons were not found in Iraq initially. The US and it's allies feverishly looked for them. They never found them. And it was an historical blunder in history. 

But the young and naive soldiers, did find pre-1991 chemical weapons years later. They were not looking for them. They instead stumbled upon them. And suffered for it. 

The Bush administration covered up this information since 2004. Why? Because the chemical weapons they were looking for, they never found. But more importantly, they covered up the stumbled-upon chemical weapons. because they put the young and naive at risk. 

This is hardly the first time, that informational arbitrage, has been used by the Pentagon, and the young and naive have suffered for it.

What instantly comes to mind, is Agent Orange in Vietnam. Not only was it used against the combatant (another wrong war), but many Vietnam veterans suffered from its affect, without being told. 

And what about Gulf War Syndrome? It was causes by depleted uranium and sarin gas.

What the covered-up Vietnam, Gulf War and Iraqi War have in common, is the sheer audacity to recruit the young and naive and put them in harms way.

But soldiers suffer from many other injuries when they don't die on the battle field. With a family like mine, in which the young and naive have served, and have been injured; you would think the VA system would be top-notch. If only from the guilt of the injured mentors. But it's not.

My children are very patriotic. Their uncles and grandfathers were Marines. But I am neither young nor naive. And I have nipped any enlistment in the arm forces for my children. Even including a court-ordered cease-and-desist order, for a local Marine recruiter. 

It should be right to serve. It should be right to have as much transparency as possible. But covered-up secrets - from Vietnam to Iraq - should give the reader pause as to whether you, should dissuade your children from serving. 


Finibus Ut Oeconomicam Augmenti

by John Jazwiec

Finibus Ut Oeconomicam Augmenti is latin for "limitations of economic growth". 

How do economies grow and what limits economic growth?

Economic Growth 

Economic growth is the increase in the market value of the goods and services produced by an economy over time. It is conventionally measured as the percent growth rate of GDP. Of more importance is the growth of the ratio of GDP to population (GDP per capita ), which is also called per capita income.

Productivity. Increases in productivity have historically been the most important source of real per capita economic growth. Over the 20th century the real price of many goods fell by over 90%. Lower prices create an increase in aggregated demand.

Historical Sources Of Productivity Growth. Economic growth is attributed to the accumulation of human and financial capital, and increased productivity arising from technological innovation. Before industrialization, technological progress resulted in an increase in population, which was kept in check by food supply and other resources, which acted to limit per capita income. Most of the economic growth in the 20th century was due to reduced inputs of labor, materials, energy, and land per unit of economic output. But since 2004, U.S. productivity growth returned to the low levels of 1972-96.

Limits of Economic Growth. As stated above, economic growth, is attributed to the accumulation of human and financial capital. While productivity requires less human labor to produce economic output. 

Carl Schramm, who heads America’s top entrepreneurial think tank, has a compelling insight into what causes an economy to grow. Growth, he says, is directly correlated to start-ups that get big.

Why? Because financial capital combined with the need for less workers; disconnects traditional labor (downward pressure) and financial capital. Schramm says the U.S. economy, given its large size, needs to spawn something like 75 to 125 billion-dollar babies per year to feed the country’s post World War II rate of growth. Faster growth requires even more successful start-ups.

Which answers Finibus Ut Oeconomicam Augmenti. Economic growth limitation is the result of too few individuals seeking not enough financial capital. Or said another way, excess "workers" - due to improvements in productivity - left to their own devices - limit economic growth. While excess "workers", turning into entrepreneurs, means more individuals seeking financial capital. 

What this mean to the reader? Sitting around waiting for the job fairy or investing/watching the stock market isn't just not productive; but they do a disservice to the stock market because of their failure to tap into financial capital on their own and create economic growth. One person with less ability to consume affects the stock market. While an other person, that succeeds in business and increases their own consumption, also increases the consumption of the people they hire. 

Income disparity is destructive only because of the "worker" and financial capital are disconnected. Income disparity creates financial capital. Historically income disparity leads to innevitable recession/depression. But the ability to step back and study economic growth theory clearly shows income disparity can eliminate the limits of economic growth. 

Suos' Ascendit UT Vos - It's up to you. 


What The Stock Market Index's Don't Show

by John Jazwiec

We have talked about what determines the price of stocks: profits and growth rates. 

We have also talked about the historical average price-to-earnings ratio; which is 14.5 while the S&P is trading at 18. Also the Buffet ratio - P/E divided by GDP - which is the highest it has been since the tech stock boom of the late 1990s and early 2000s.

What we haven't talked about is volume. The run up of stocks since 2010, has seen very low volume of trades. The pull-back of stocks over the last three weeks and three day has also seen low volume of trades.

What does this mean? While we watch stock indexes; we don't have any clue at which price point stock owners bought at. 

As of yesterday the S&P was at $1,887. At its highest volume - 2010 - the S&P was just above $1,000. So the weighted average of the S$P is logically between these two numbers. 

Presumably buyers who bought at the peak of 2,000, are underwater and are likely selling. But what about stock owners that bought at $$1,500? They are still in the money. 

If the stock market is trading at a PE ratio of 18 today, and the historical average is 14.5;a 17% drop in the S&P would need a 17% correction. Or 1,887 times 0.17 = $320 or $1,567. 

Meaning people that own stock above $1,567 will need to sell and people that own stock below will not sell. 

When will the market hit a bottom? When the volume of selling is high and all the underwater investors capitulate. The faster this happens, the less scary the stock market will become and price volatility will diminish. 


Income Disparity Rising And Its Repercussions

by John Jazwiec

 

Income disparity is rising. 

The ratio of wealth-to-household-income in the U.S., a measure of inequality, is the highest it has been since just before the Great Depression.

Meanwhile, the richest 1 percent in the world own 48 percent of all the world's wealth.

Going back to 1900, wealth has always been at least four times as high as disposable income. That's the nature of wealth. Wealth is built up, while disposable income is spent. 

Right before the Great Depression, there was seven times as much wealth in the country as disposable income. Right before the dot-com and housing bubbles burst, there was six times as much wealth as income.

Of course there are multiple ways to interpret today's data. 

Wealth and disposable income ratios are made up of two variable. Much of wealth has always been deployed into stocks; leading to wild swings in value with a risky asset. Some of wealth is deployed in US Treasuries and is "parked".

The profits of corporations have become systemically higher due to workforce automation that eliminates jobs. This leads to some sense of higher valuations. 

But the other side of the coin - workforce automation - systemically lowers disposable income. 

In any case, the reader can see down below a graph of the ratio of wealth to disposable income in the US from 1900 to 2014. 

Repercussions.

1. US stocks are overvalued. 

http://www.johnjazwiecblog.com/2014/10/us-stock-look-out-below.html

A correction is overdue and we are in the midst of it as of this writing. 

2. Wealth will shift from stock to US Treasuries. As of this writing, the yield on 10-Year US Treasuries, has dropped to 1.92 percent from 2.20 percent the day before. 

3. Liquidity trap. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation or insufficient agrregate demand. Hoarding cash means "parking" the money into US Treasuries. 

Bottom line. Large wealth-to-disposable-income ratios are not sustainable. In today''s case, some percentage of wealth may get out of stocks into almost zero percent US Treasuries and be maintained. But the majority of wealth will be lowered by falling stock prices. The unknown is if corporations will cut back hiring or layoff workers to goose their profitability. 

In other words, how far wealth-to-disposable-income ratios will fall, is undetermined. But they will fall nonetheless. 

 

10-15-2014IncomeDisparity


Note To Investors: You're Making The Same Wrong Bet

by John Jazwiec

As I posted out yesterday, and have posted before, future inflation is not the problem. Deflation is the problem. 

I also mentioned yesterday, and have posted before, the following facts on US Treasury bonds -

  • Yields move inversely to bond prices.
  • While the Fed has maintained loose monetary policy, yields have remained low.
  • Current yields only guarantee returning money; not returns on money. 

But investors - even with the Fed kicking-the-can-down-the-road as to ending loose monetary policy - keep betting against the Fed and assuming yields will rise with investors assuming inflation is around the corner. 

Investors have been predominately shorting US Treasuries. Because yields move inversely to bond prices, and higher yields are expected from "coming" inflation, investors believe US Treasury bonds will drop.

On the first of October, 10-Year US Treasury yields were 2.42%. Yesterday they closed at 2.31%. 

So what have the bond gurus been doing this month? They are closing out their short-trades on US Treasuries. 

Hence a note to investors. You're making the same wrong bet. Despite the Fed procrastinating on ending loose monetary policy, you're still assuming the Fed is wrong and inflation is going to roar back soon.

You're still worrying about inflation. But despite the Fed not using the "D" word, they are more worried about Japanese-like deflation than inflation. So the Fed continues to hold out, in hopes of Congress changing fiscal policy.

There is an old adage. Don't bet against the Fed. That's because they know more than you know and more than bond gurus like Bill Gross who left PIMCO abruptly. Don't make the same mistake. 


Note To Fed: Deflation, Not Inflation Is The Enemy

by John Jazwiec

The US Federal Reserve has two mandates. Monetary stability and economic growth. Monetary stability since the Great Depression has meant keeping inflation low. Sans the the early 1980's - when inflation spiked and the Fed used high interest rates to cool the economy - we have been living with targeted inflation of 2 to 3% per year.

But now there are structural changes to the US economy and the risk is deflation; not inflation. The following are the top reasons to worry about deflation. 

1. Income Disparity. Forget the fairness of it. With the rich accounting for 25% of the wealth of the US, and the US being a consumption-led economy, there is less and less consumption. The wealthy invest and others consume. If inflation comes from too many dollars chasing too few of goods; most certainly too little dollars chasing too many goods is leading to deflation. 

2. Age Demographics. The baby-boomer generation is in the middle of retiring. Today's young adults - 21 to 30 - are either not working or are underemployed. Both of these groups have less and less money to consume. There is just not enough young consumption - less of a population and less $ per individual - to make up for retirement's drop in consumption. 

3. World-Wide Economy. Free trade ensures prices don't go up. If someone can make the same thing for less; they end up being the market leader. Combine that with energy consumption (oil prices going down due to oversupply) and just try and name any goods that are going up in price.

4. Return The Money, Not Returns On The Money. Bond yields are almost zero. US Treasury bonds remain historically low. German bonds are negative. This not only is deflationary - substituting returns on money for returning people's money - but a bond investor risks losing money if yields go up. Why? Because bond prices go down when yields go up. 

5. The Stock Market Being The Only Port In The Storm. Why do you think stock market investors follow the Fed? Because it is the only place to earn higher yields than bonds. What happens when the stock market goes down? It forces investors back into bonds and subjects the economy to its deflationary forces. 

Economists know how to control inflation. But they don't know to control deflation. And they are going to have to figure out how to deal with deflation quick. 

I don't care how much money you or I have. It's going to lose value by maintaining the status quo. Fiscal policy has been ignored and Congress has left economic health to the Fed. But that time needs to end. And more risky and drastic actions will be required.

How can fiscal policy increase consumption? The reader and I might not like it, but increasing government spending and job creation is an obvious tool. But how to pay for it? The reader and I would have to pay higher taxes to offset spending.

What is the likelihood of that happening? Zero. So the Fed has no other option that to maintain a loose monetary policy for many years to come. And they need to be explicit. That will allow the stock market to maintain its health until fiscal policies can be put in place. When will that be? Only when the crisis of deflation is upon us. 

That's the lesson of Japan. And they waited twenty years. Time will tell if it was too late. 


US Stock: Look Out Below?

by John Jazwiec

Stocks spiked and dipped all week. The Dow Jones industrial average plummeted 273 points Tuesday, roared back on Wednesday with a 275-point gain, and then plummeted again Thursday and Friday, ending the week down 2.74 percent at 16,544.10 on concerns about the global economy.

It was the same story for the S&P 500 Index, which fell 3.1 percent over the five days, its worst weekly drop in more than two years. And the third straight drop in three weeks. 

So what to make of it? Will stocks continue to fall? Will the stock market have a 10% correction (a normal movement in any stock market)? Will the stock market fall by more than 20% (an abnormal movement indicating a future recession)?

1. As I have posted before, stock prices and company market valuations are determined by profitability and growth. Both combine to establish P/E (Price-To-Earnings) ratios. 

The S&P 500 has historically traded at a P/E of 15.5. Even after the stock market losses over the last three weeks, the S&P is trading at 18.47.

So if the S&P were to fall to its average, it would represent a 16% drop (18.47-15.5/15.5). 

2. Than there is the so called "Warren Buffet Valuation Method". Its more complicated than this; but basically P/E ratios are divided by GDP. When you think about it, it makes sense. Higher P/E ratios with low GDP, suggest stocks are being overpriced. While higher P/E ratios with high GDP are justified. 

The Buffet ratio today is the highest it has been since the tech stock boom of the late 1990s and early 2000s.

Conclusion: the same I posted throughout 2014. I am not suggesting you should sell stocks. But I continue to advise not to buy stocks until further stock prices are more rational. 


Leon Panetta: Kind Of, Wrong And Partisan II

by John Jazwiec

http://www.johnjazwiecblog.com/2014/10/leon-panetta-kinda-of-wrong-and-partisan.html

I wrote the following two days ago on Leon Panetta's tell-all-book - "Worthy Fights" -

Either way - be you a Democrat or Republican (I am an independent) - such an obvious partisan attack from a member of the Obama administration is distasteful. 

Now Peggy Noonon this morning, a conservative writer for the Wall Street Journal, is blasting the liberal, Democratic Panetta for writing a tell-all-book on a current sitting president instead of piling on.

His headline on the entire Reagan era: “Poverty spread and deepened during the Reagan years.” Under Bill Clinton “the economy boomed,” “poverty shrunk,” and “leadership matters.” Reagan, in fairness, was less terrible than Mr. Panetta expected, “less ideological and partisan.” Mr. Clinton is “ravenously intelligent.” Mr. Panetta lauds Mr. Clinton’s “astonishing ability to sift through facts” and his “empathy for average people.” The compliments are at once lackeyish and patronizing.

 

Here’s what’s true. At 76, at the end of a half-century-long, richly rewarded career, with perspective having presumably been gained and smallness washed away, in a book of history and reflection written at a time of high national peril, a lack of political graciousness, and the continued presence of a dumb and grinding partisanship, is unattractive to the point of unseemly.

 

Mr. Panetta perhaps took this tack to buy himself space on the left. He is telling partisan Democrats on the ground that he’s really one of them, he hates those Republicans too, so you can trust him when he tells you Mr. Obama’s presidency is not a success.

 

Why does this all matter? Why have I devoted two blogs this week on this subject?

Because tell-all-books, written by people like Hillary Clinton, Robert Gates and Leon Panetta, set a dangerous precedent. A president is like being a CEO. Success comes from surrounding yourself with the best people who provide a healthy debate. 

In the future, there is a danger that Obama and future presidents will be prone to surround themselves with weak advisers who tilt toward being lackey in exchange for being overly loyal. 

And that's not good for the country. 


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From athletic scholar and satirist to computer programmer to CEO success, John Jazwiec brings a unique and often eccentric perspective to business and supply chain challenges. Exploring how they can be solved through the leadership and communication insights found in untraditional sources. This CEO blog demonstrates how business insights from books on history to the music of Linkin Park can help challenge and redefine “successful leadership.” Read Jazwiec’s Profile >>

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