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Trade weighted US$: 91.45;  US 10-yr: 1.81%;  S&P 500: 3239;  Oil: $63.25;  Gold:$ 1,550;  Silver: $18.14

Happy New Year!  May 2020 be fulfilling, enriching, and healthy for you and your loved ones!  Given where we’re going, I think strong local networks, good handyman skills, and tight-knit families residing in the same geography will become increasingly important.  Call it a “blast from the past.”

I recently shared some thoughts on our political situation with an aware and quite knowledgeable subscriber to my youtube micro channel.  The lady’s name is Jane.  I hope she doesn’t mind me sharing my feedback to some of her comments and one of her links in post form here.  Below some of the “back and forth” in chronological order (I hope!) related to a recent video titled “Massive new printing pushing stocks higher still.”

Before I get there, allow me an augmentation by shedding a bit of light on the involved philosophies turned into political actions in my own words.  Socialism is heavy-handed government/bureaucratic interference and control over the economy/the factors of production and is, by definition, individual rights and free market corrosive.  As such, socialism can hardly be democratic, as unelected bureaucrats largely determine our fate and that of the economy; not much representative government taking place here, which is part and parcel of an indirect democracy, which in the US is manifested in the population-proportional, directly-elected House of Representatives.  Thus, democratic socialism is an oxymoron. Socialism’s more aggressive kissing cousins are fascism (as in Hitler’s socialist NAZI party in Germany) and communism (as in Lenin/Stalin in the USSR or Mao Zedong/Zhou Enlai in China).  Fascism has been called socialism with a capitalist veneer; I call it crony capitalism on steroids.  For a more qualified definition of fascism, click here or see down the page. Communism, or Marxism, has been called socialism with revolutionary fervor in which violent and socially divisive persecution of the bourgeoisie (the property-owning class which employs people) is its “battle cry;” its raison d’être.

One could say that fascists and communists are fighting for control over the same liberty-denuding philosophy put into political action, i.e., socialism.  Said differently, a top-down control turf war between one faction, fascism, which doesn’t nationalize, yet very tightly controls — often for militaristic reasons, as in NAZI Germany and I would argue in today’s United States — private property, what constitutes money, and thus the economy, while the even more virulent faction, communism, is not only a command and control economy, but there is no more private property whatsoever.  Moreover, communists will not rest until the last remnant of individual freedom and private property have been expunged.  The bloodier the methodology to achieve this goal, the better, as “final solutions” are singularly successful in both taking out any (perceived) resistance to complete despotism while sending unmistakable signals of stark intimidation to both the ruled and those helping to rule.

Now to that back and forth on whether America has become a fascist nation, please see below, starting with initial comments/links:

Jane Self:

I am sharing a few links I have read.

DK ANALYTICS (please note that I only included one of Jane’s links here not to exclude the others, but because I felt it was most topical to the matter being addressed):

Thanks, Jane, this is a highly appropriate link given the fascist government we now have. I am aware of exactly this “statement 56.”  In essence, the US government can determine that any request for clarity regarding undocumented, unsupported, or unreconciled accounting, including $21trn in DOD and HUD funding/spending black holes, can no longer be questioned by US citizens because these matters have conveniently been determined to be related to national security risks, thus no transparency nor accountability can be provided by the US government. This is no way to run a representative, constitutional republic (we are not a democracy, Ms. Fitts, we are a republic; please see: ).  Rather, it is fascistic. 

Jane Self:

The link you gave is not “found?”


Sorry that you’re having trouble with the Hillsdale link to Federalist 10. I just tried it again, and it worked for me. Maybe you have some kind of VPN running that prevents access? Assume you’re good with the other link that defines fascism nicely. Meanwhile, and back on point, let me see if I can give you some of the first page of Madison’s Federalist 10, where he discusses the nature and attributes of democracies and  republics:

Whereas democracy entails direct rule of the people, in a republic the people rule indirectly, through their representatives. A republic can therefore encompass a greater population and geographical area. This difference is decisive in the American experiment, Publius argues, for an expansive republic is able to control the inherent danger of majority faction. November 22, 1787 The Union as a Safeguard Against Domestic Faction and Insurrection Among the numerous advantages promised by a well-constructed Union, none deserves to be more accurately developed than its tendency to break and control the violence of faction. The friend of popular governments never finds himself so much alarmed for their character and fate as when he contemplates their propensity to this dangerous vice. He will not fail, therefore, to set a due value on any plan which, without violating the principles to which he is attached, provides a proper cure for it.

The instability, injustice, and confusion introduced into the public councils have, in truth, been the mortal diseases under which popular governments have everywhere perished, as they continue to be the favorite and fruitful topics from which the adversaries to liberty derive their most specious declamations. The valuable improvements made by the American constitutions on the popular models, both ancient and modern, cannot certainly be too much admired; but it would be an unwarrantable partiality to contend that they have as effectually obviated the danger on this side, as was wished and expected. Complaints are everywhere heard from our most considerate and virtuous citizens, equally the friends of public and private faith and of public and personal liberty, that our governments are too unstable, that the public good is disregarded in the conflicts of rival parties, and that measures are too often decided, not according to the rules of justice and the rights of the minor party, but by the superior force of an interested and overbearing majority. However anxiously we may wish that these complaints had no foundation, the evidence of known facts will not permit us to deny that they are in some degree true. It will be found, indeed, on a candid review …”

Another heads up, Jane, on our sadly fascist government as defined elsewhere: a great telltale sign of our current political disease is manifested by the fact that NO bigwigs EVER get accused of anything (substantial), much less convicted. Central bankers lie regularly and destroy our once solid, constitutionally-mandated currency while they finance growing statism, cronyism, and the resulting illegitimate concentration of wealth; big bank heads representing banks earning untold billions off of post Glass-Steagall moral hazard (the Fed cabal, which they own, has their back) or engaged in market rigging never face charges, much less indictments, for reckless and/or felonious behavior, save for “billion dollar wrist-slap” fines that pale compare to their mind-bending bottom lines reaching into the hundreds of billions of dollars (instead, they and their shareholders get taxpayer or Fed bailouts when things go wrong); big defense contractors that hideously gouge taxpayers with “multi-hundred dollar toilets” are never indicted; and of course our lawless former top-tier politicians and bureaucrats, the Obama, Hillary, Biden, Holder, Comey, and Brennan types, are now working as “connected consultants,” publishing books, penning articles, and doing interviews on fake news channels, which is part and parcel of the cushy revolving door between the administrative state (the deep state) and big business. Once again, how does one spell fascism?  How about “like this?”

And let’s not forget how an arguably average American is treated if he happens to be a sailor on a sub sending home a pride-filled picture until Trump pardoned him, or how Tea Party activists were targeted and harassed by Obama’s IRS if they dared to espouse a constitutional perspective in a PAC format (did I mentioned that no involved IRS heads ever got punished, nor lost their cushy pensions?).  Or, let’s not forget what happens to Americans that don’t file or can’t pay what effectively amounts to IRS extortion even as illegal alien criminals can’t be touched in sanctuary (lawless) cities and even as illegal aliens are encouraged to get driver’s licenses in “blue states.”  Or, lastly, consider what happened to an innocent American in California that was falsely fingered, indicted, and jailed for producing a incendiary video that “triggered Benghazi.”  I could go on, but we know what’s going on!  You are either part of the ruling elite or a big business chieftain and their hangers-on, and you are above the law, or you’re a non-privileged citizen that increasingly has to fight to recover, against a ruling mob with virtually endless resources, the very constitutional protections that have too often been stripped away courtesy of fiat law, the antithesis of the rule of law/the US Constitution.  (Admission: virtually the only difference remaining between today’s fascist US government and full-fledged socialism/communism is the fact that there is still private property.)

An addendum on our fascist government: we not only have an ogopolistic military-industrial complex that Eisenhower long warned about, but we have only six major media companies left (thanks, “BJ” Clinton) that — as we can see — do the leftist bureaucracy’s bidding else risk FCC license suspension; this is how we got fake news. We also have the United States of Goldman Sachs, and a revolving door between the Treasury and Goldman/Wall Street that facilitates unfathomable taxpayer bailouts and Fed assumption of toxic assets; for recent flavor, think of the “repo bailouts.”  We also have “K Street,” where corporate lobbyists hugely influence legislation and regulation (where it’s really at, right bureaucrats?) to throw sand in competitive gears, in the process increasing the profits of an ever more oligopolistic private sector (the return on K Street lobbying is absolutely astronomical; how does a composite return of 200:1 or 20,000% sound!).  Of course, the involved bought-off legislators (the vast majority on either side of the aisle, which is why I tell my closest friend from childhood that donating to any politician’s campaign is akin to giving a married man money to go to a brothel) can look forward to very lucrative “post office” DC-access/lobbyist careers with those very companies they helped in terms of securing privileged access, contracts, and crony profits.  That is, once they stop supporting, as legislators or high-level bureaucrats, corporate welfare at taxpayers’, small companies’, and free market capitalism’s expense and start pursuing their highly remunerative, “post public sector” lobbyist careers.  As such, is it any wonder that so-called private sector profits keep getting increasingly concentrated in the very big cap arena that has government access (big business in bed with big government is being taken to the next level). Or, is it any wonder that ten of the twenty riches counties in the US are clustered around Washington, DC?  Or that the concentration of wealth is in ever fewer hands and unprecedented in scale?  How does one spell fascism? Or how about like this:

Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly, fascism did so implicitly, by requiring owners to use their property in the “national interest”—that is, as the autocratic authority conceived it. (Nevertheless, a few industries were operated by the state.) Where socialism abolished all market relations outright, fascism left the appearance of market relations while planning all economic activities. Where socialism abolished money and prices, fascism controlled the monetary system and set all prices and wages politically. In doing all this, fascism denatured the marketplace. Entrepreneurship was abolished. State ministries, rather than consumers, determined what was produced and under what conditions.”

So much for the youtube comments, observations, and claims.  If “all that,” namely our currently fascist state in which two warring factions of socialism keep fighting for the upper hand, doesn’t ring any bells, consider the fact that both parties, at the end of the day, work together to further one or another form of totalitarianism in which politicians and bureaucrats — principally leftists — on either side of the party aisle end up enabling or refusing to act to rein in lawlessness committed at the upper echelons of an increasingly unconstitutional government.  To do so — just ask Senator Mitch McConnell or Senator Feinstein — would prove self-destructive to both parties’ immense power, perks, and, most of all, their above the law status.  For flavor, consider candidate Trump’s debate pledge that if he gets elected, Hillary will go to jail.  Soon after Trump became president, he let the world know that Hillary had suffered enough.  Or, dwell on the ludicrous “suicide” of highly criminal Jeffrey Epstein that took place in a maximum security federal prison late last year.  It just so happens that Epstein was pals with power brokers on both sides of the aisle, both in and out of government.  Current US AG Barr’s dad even hired Epstein as a teacher,  which Jane Self kindly first drew to my attention.  Clearly, Epstein just had way too much “dirt” on our above the law bigwigs, so if he started to “spill the beans,” the American people would possibly come to understand just how corrupt and criminal their leading politicians, bureaucrats, and cronies are.  Can’t have that!  Still wonder why he was “suicided?”

If you subscribe to my conviction that the US has, in certain respects, become where fascist Germany and Italy left off in their failed WWII Axis efforts even as the left continues to aggressively attempt to completely tilt the country from fascism into full-blown tyranny, also known as communism, how does one invest for this reality?  Think of it as financial repression on steroids.  Our decade-long, global financial repression has been very, very effective in terms of driving down interest rates for capricious, rapacious, expansionary, deficitary, Main Street property rights-pummeling, redistributionist, price discovery eviscerating, increasingly non-representative/statist OECD governments across the globe.  That same repression has also long encouraged debt-laced, C-Suite-self-serving stock buybacks over cap ex/organic growth via unparalleled low corporate financing costs on the one hand (I call it “Corporate Anorexia”), and the P/E inflation that low interest/discount rates bestow on stock valuations on the other hand. 

Investors shouldn’t increase exposure to the unsustainable insanity that has worked so well in terms of generating bubble valuations in stocks, bonds, and real estate while simultaneously discouraging savings, investment, and thus productivity and sustainable real GDP growth.  While markets have stayed irrational longer than Ben Graham-type thinking investors have been able sustain their clientele, neither the laws of economics nor business cycles have been abolished.  The same holds true for markets which, like the humans that define and determine them, display manic-depressive asset valuation tendencies.  When our current bubble valuation mania ends, don’t look for valuation reversion to the mean (say 15 P/Es and 4% 10-year Treasury yields in the US).  Instead, look for valuation reversion BEYOND the mean, as in single-digit P/Es/double-digit earnings yields and double-digit yields on investment grade bond yields.  Look for valuations that will reflect, once again, increasingly entrenched stagflation, the progeny of our long-standing, statist, toxic public policy stew.  This is because investors will eventually (again) insist on dramatically widening nominal returns to offset unparalleled and expanding monetary inflation and debt default risks, both of which the printing press “fathered,” and both of which will only get worse until misplaced confidence in the fiat currency status quo crumbles.   For a graphic historical illustration of how this “played out” in the stagflationary ’70s, please see, yet again, the excellent Yardini chart below:

Commensurately, investors should reallocate to assets that have been punished by statism on the one hand, and will do well in a stagflationary environment that is a near given going forward thanks to our long-standing, productivity-drubbing misallocations on the other hand.  Think of it as the ’70s on steroids aggravated by inconceivably higher debt levels, much bigger governments, incomparably more regulatory compliance costs (estimated at $1.9trn in the US alone), rapidly aging populations, and unparalleled pension under-funding, both the private and public sector varieties.  Call it the disgrace of financial repression and dishonest accounting assumptions coming home to roost.

Now, take it one step further, as deficits, debts, under-funding, and declining consumer purchasing power all threaten to become increasingly worrisome and testy.  How do statists (our OECD governments) retain control as financial and political stability threaten to crumble?  I’d argue that they already have implemented the necessary measures.  It’s known as fascism.  In the US and elsewhere, including of course Germany in WWII, if all else fails, they take you to war.  The US has typically been in non-stop wars of one or another kind for decades.  Not only is this a great distraction to avoid closer inspection of what’s wrong at home, but it convinces drone citizens that they must yield more and more of their dwindling circle of liberty — for their own safety, of course, as in the Patriot Act — to the Feds.  Same goes elsewhere, be it in the investment business (the disastrous Dodd Frank legislation), in the pharmaceutical industry (the FDA forbidding even patients with a very short life expectancy from getting access to potentially life-extending drugs unapproved by the agency while the cost of getting new approved drugs through the bureaucracy are so stark that all but the biggest pharma companies are pushed aside), in the insurance business (family budget-dominating Obamacare and more), in the energy business (the outrageous, property rights-curdling SCOTUS’s Mass vs. EPA decision, which falsely, incompetently, and destructively determined that coal power-based CO2 emissions threatened the environment; a Europe that has gone green crony energy insane, in the process making power less and less affordable for average citizens; and leftist California, which recently mandated that all new houses must be subsidized by taxpayer-financed solar equipment with incredibly poor ROIs, are all indicative of our global slide into unaffordable, non-24/7, productivity-and-output-diminishing power), in the media business, etc.

In other words, wherever we turn, government is in our face, and crony capitalism/statism has morphed into more aggressive fascism, which is in a fight against the communist faction of socialism to determine our future (interestingly and disturbingly, both factions seek to project national/military power on to other nations).  While we are likely off the rails politically and socially — and we’re collectively way too indoctrinated/uneducated/still too comfortable to fight for the declining scraps of liberty remaining — the misallocations, mispricings, bubbles, and unmatched debt edifices that our toxic, increasingly despotic public policy stew has brought suggests that we have to reallocate our investable assets quite dramatically to reduce capital impairment risk and to optimize strategic return potential.  I’m referring to embracing the very assets that will give us a chance of arresting our economic/output decline.  Select dense energy assets and the related infrastructure, from nuclear to all fossil fuels (especially coal), immediately come to mind, for leveraged output (our economy) depends upon these very assets being properly deployed.   Translation: even affordable energy-destroying leftists and crony capitalists (they are in bed with each other) cannot afford to sustain a policy which will incessantly collapse our way of life or our GDP per capita, so invest in attractively-valued dense energy assets before they are again “politically correct” due to economic necessity.  The gathering global weakness may provide for an even more attractive entry point.

Meanwhile, shield or reallocate your investable assets (e.g., your overvalued stocks and bonds purchased at rich valuations) from the unavoidable doubling down on financial repression — as recently commenced in unparalleled terms by the Fed — which threatens to increasingly strip away what remains of our fiat currencies’ dwindling purchasing power while at some ever-closer point threatening to collapse the misplaced confidence in our increasingly dysfunctional and perpetually less sustainable fiat currency system.  Protect your “value-at-risk,” investable assets from the upcoming, beyond-the-mean valuation reset.  And, because we all need to eat, select assets in the long-ailing ag sector should also prove good diversifiers while offering solid strategic return prospects.

Fascists will increasingly covet control over vital real assets (and real money) if they are to have any chance of sustaining their redistributionist, self-enriching, expanding, command and control economic/political governing system, i.e., avoid either a revolution or an economic/financial collapse, which would likely cost them and their hangers-on their lives while possibly opening the door to socialism’s even uglier faction, Marxism.  You have the chance today to pick up various real assets (commodities and the related infrastructure) that have either been panned or simply sold as the madness of crowds and momentum investment strategies (and yes, algos, too) have people continuing to overpay for bonds, for stocks, and even for (yet more) fake money!

Thus, if you can’t beat ’em, at least lead ’em :-)!  And if the commies win, everything is lost anyhow, but maybe you’ll be able to use your physical gold and silver stored outside of the banking system.  If you live in the US, get some “junk silver” so that you can a) barter better for scarce food and other necessities that will be in short supply thanks both to lingering misallocations and to an at least transitory freezing-up of the credit system upon which everything is based, and b) be better positioned to buy off a Marxist government goon when “push comes to shove.”  Gotta have a “Back in the USSR” game plan too, right?

Dan Kurz, CFA, DK Analytics

FYI: Edits and select link inclusions continued after publishing date.  Post substance remained unchanged.

The obligatory boilerplate:

This commentary is not intended as investment advice or as an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion of the author at the time of writing.  Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not a complete summary or statement of all available data necessary for making an investment decision.  Liquid securities can fall in value.