Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Securities Page 1 of 3

Silver Short Take

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On February 7, 2026

16 Comments

Jaysus on a popsicle, Mary and all the Saints do I have some egg on my face. Since January 27 silver has been on one seriously wicked ride. I’ve been banging my head to Metallica’s Whiplash for the last ten days.

So, WTF happened?

In short: from where I sit the paper markets are trying to create a force majeure situaiton for March contracts. The market is incredibly volatile and highly illiquid. Traders are draining the vaults of bullion. Indeed, as Dario notes, “Silver physical deliveries at the Comex just crossed 4,000 contracts (~20m/oz)and we are only 6 days into February.” That’s nucking futs. 

If the Comex defaults to force majeure (SHFE is a bit of a different matter) the Comex will lose all credibility as a fair functioning market dedicated to price true discovery. Never mind that silver prices in the USA has been a cozy Fed-supplied rentiers market for decades, should this happen businesses will begin a mad scramble to source silver for themselves. That leads to supply and demand chaos. Bad. Vewwy bad.

On the SHFE–Shanghai–one day last week over 1.3 billion ounces of silver volume were traded. That’s one year of global demand in a day. The Chinese government’s motto regarding traders shorting silver on the SHFE seems to be FAFO. The Chinese are cracking down hard. Why? Well, to produce one gigawatt of power using solar panels requires 1 million ounces of silver.

You read that right. One million ounces.

Fundamentals matter. Global demand is strong. Businesses need silver for industrial applications beyond just solar panels and dentistry. But traders can keel-haul fundamentals sometimes with epically shitty consquences. Watch this video by Dario starting at minute 6:43 for how this possibly plays out.

It’s ugly. And it seems to me that maintaining a viable silver market is now fully in the hands of the Chinese. US traders are determined to destroy price discovery and reinstate the cozy rentiers market in the US.

I have no idea how this will end.

How Should CEOs And Politicians Be Punished For the Evil They Do?

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On March 28, 2023

30 Comments

Came across this tweet about the Philadelphia water spillage the other day:

So, shit happens and sometimes truly, no one is really to blame. But a lot of bad things which happen are a result of deliberate negligence or direct action. A good example is PG&E, the California power utility, which hasn’t been bothering to clear the areas around power poles and transmission poles or replace or repair old power poles. They knew this would lead to more forest fires and it did and people lost everything, including their lives, in some of those fires. PG&E had the money to do the maintenance but preferred to pay larger dividends and give more stock options to executives.

So the chemical spilled into Philadelphia’s water supply were spilled by a private company. We don’t know if negligence was the issue, but if it was, what should be the punishment?

Lately we tend to just fine companies, but that does nothing, especially as the fines are often less than the amount of money they made thru being negligent, and in any case, fines don’t remove the massive money executives already made from their actions, nor the money the owners made.

Clearly fines don’t work.

The first issue is the question of limited liability for shareholders and the use of corporations as shields for executives. There were sound reasons for limited liability for owners who really don’t control corporations, with unlimited liability people wouldn’t want to invest in companies and when primary issue of stock was a major, or the major source for creating new companies, new corporation creation would have collapsed without limited liability.

But the disadvantage of limited liability is, indeed, that corporations tend to do evil acts knowing that their owners won’t pay the full price for them, and the way corporate executives and decision-makers tend not to go to jail for actions that an individual would go to jail for (or be liable for personally in civil court) is causing huge problems.

I think we’re going to have to remove these shields, in the case of anything where a reasonable person would know that harm was likely to occur. If you make the decisions or get the benefits, you are on the hook, and you need to be on the hook for more than you made.

But there’s another question. What is the correct punishment beyond financial, because a lot of the crimes aren’t crimes where money can make the victims whole?

Perhaps with respect to polluters, for example, the executives might be made to partake of their pollution. “This is what people drank, you will drink the same.” Or “this is what people breathed for days that caused cancer, you too will breath it.”

There’s a certain eye-for-an-eye beauty to this, but I dislike doing evil to people even when they have done evil because it’s still doing evil.

I would suggest instead a simple rule. Take back all the money them made while in charge, then take enough to bankrupt them. Next, since they have shown they can’t be trusted, forbid them from any position of authority in any organization: no management or executive or board positions, no legal ability to control anything. All their possessions in the future must be controlled by an executor appointed by the government.

For truly significant harm, we might say that they are no longer allowed to work, but must subsist on whatever welfare or other provisions are provided for the indigent. Given background checks, this is often what happens to criminals: no one will hire them.

(Doing this to important people would likely lead to a significant improvement in the welfare system.)

These should probably be time gated. Ten years minimum, thirty year max, with the possibility of “parole” where they’re allowed to have a low level responsible positions, like foreman or control over their own assets while someone watches over their shoulder to see how they do.

All such rules, of course, must be done with the presumption of control. If you’re CEO or a board member, you don’t get to dodge any decision you should have known about. You don’t get to blame managers or grunts.

What sort of solution do you think would work to stop corporate malfeasance (or political)? Put it in comments.

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What Negative Interest Rates Mean and What We Should Do

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On August 21, 2019

40 Comments

Alright, so Germany has now introduced a zero interest bond. That means, given inflation, people will get back less effective money than they started with.

At this point, outside the US, the average interest rate is negative.

As Stoller pointed out, that means that people with money can’t figure out anything productive to do with it which will make a profit.

That means that capitalists and banks, including central banks, have failed. It is their function, in a capitalist society, to allocate resources. Money represents resources: people, stuff, and land.

Now if we lived in a utopia, with no real problems, this would make sense, but we don’t. There are tons of real problems which need solving, lots of money floating around, and other capacity indicators show there are people and resources which are not being used, or which could be redeployed.

So capitalism is failing to do what it’s supposed to do, and so are capitalists.

The correct action in a situation like this is to get that money working. The government could borrow it massively, and do what needs to be done. It could (and I would suggest this is the better option) tax it away, and then spend it.

If capitalists absolutely insist on private enterprise doing the work, then they should massively raise taxes on any income or capital gains not used productively, and not count less productive things like loans–they should stipulate that the money must be invested into business activity. They should make stock option grants, stock buy-backs, and all similar activities intended to allow cash-outs impossible. They should get rid of private equity; just make it illegal. Almost all of its activity destroys viable business to create a pay day for a few people.

Heck, you should do away with all those things anyway.

People are very confused about profit. Profit is mostly socially constructed. It is not an independent variable. Taxes, laws, and regulations determine what is profitable and what isn’t. Billions of subsidies, tax breaks, and favorable land deals make extraction industries profitable, for example. Banks get to print money. Media companies like Disney rely on characters and ideas which, in the past, they would long have lost control over. Companies are allowed to pollute for free, to use vast amounts of water for nominal prices, and so on.

Meanwhile, a vast array of regulations and nickel and dime costs makes it impossible for small business to compete. Try starting a bank. Yeah, good luck with that.

This, too, is by design. Before Reagan, regulations were set up to make small businesses easier to start and keep running.

The point is that if investors can’t find anything in which to invest, government has failed to tweak profits correctly. You shouldn’t get rich in land speculation unless you’re building stuff that should be built. You should get rich in alternative energy, but mostly you don’t. You should get rich in making homes that are healthy and energy neutral, but instead we keep building unhealthy and environmentally-degrading housing.

You should make money rebuilding infrastructure, or building high speed trains, or reducing carbon, or reforesting, or making fish and phytoplankton stocks recover.

Yet, you don’t, so these things which need to be done in order to, like, avoid a few billion deaths, don’t get done.

That’s government failure.

Capitalism does not work without effective government control, if it is the dominant economic mode in a society.

So. We have lots of stuff that needs to be done. We have lots of resources and money which aren’t doing those things and, indeed, resources and money which apparently can’t find anything to do

Only a moron can’t look at those facts and know what to do.

Oh, and the 2008/9 bailouts made this situation far, far worse than it should have been. This endless printing of money is only to keep the useless rich afloat when they serve no useful, productive function. They are actually counterproductive, as they are actively stopping productive activity from happening.

Tax them. Stop propping them up and let incompetents die. Destroy, utterly, those members of the ruling class who are actively destructive, like Private Equity. Alter the rules so that productive activity is profitable, and while you’re doing all that, just have governments do the most important stuff themselves, with negative real interest rate loans.

None of this isn’t obvious to anyone who pays any attention.

Yet we don’t do it, because governments have been captured by failed rich people.

Normal. But not acceptable when the cost of inaction could be billions of dead people.

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Major Governments Can Shut Down CryptoCurrencies at Will

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On January 14, 2018

50 Comments

Government can shut down the cryptocurrency experiment any time it wants. Government money creation worked because the government insists you pay taxes in their money and they have people with guns. Crypto exists as long as governments wants it to and no longer.

There is a great deal of triumphalism in the crypto-world, because it has made a bunch of people rich. People who get rich virtually always think it is because they are great people. They feel empowered and so on. (And, according to the research, generally become selfish jerks with a reduced empathic response.)

The simple power relationship is this: Any government can put the hurt on crypto and largely shut it down in their country simply by criminalizing it and having their taxation folks watch the entrances and exits.

Crypto can be badly hurt by three governments: China, the EU, and the US, in exactly the same way. Crypto is arguably in violation of a host of security laws as it stands, and could be made more illegal any time a regulator or government chooses to.

People with guns beat people with cryptography. Code is not law, and the people who thought it was were fools. Law is what people with something approaching a monopoly on violence in an area say it is, and nothing else.

Peer-to-peer financial networks are a good idea: Cutting out banks for exchanging money is a good idea. (Bitcoin is a bad way to do both, but that’s not this article. Other coins do a better job.)

But it must be allowed by those people who control organized violence, and if they choose not to, all your technical wizardry will not save your networks, even if some crippled, black web version remains.

Nor is money creation quite what you think it is. Money exists mostly because powerful people want to be able to coerce the non-powerful through either taxation or debt-farming. Other benefits are incidental, if appreciated.

That doesn’t mean that crypto can’t, in theory, grab money creation from banks (though co-optation is far more likely). It means that, like banks, whether crypto can do so rests on whether they can cut a deal with, and prove their usefulness to, state-sanctioned, organized violence.

This is all it is ever about.

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CEO Martin Shkreli Arrested for Securities Fraud

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On December 17, 2015

10 Comments

Shkreli is the pharma CEO who famously raised the price of an AIDS drug over 5,000 percent and bought an one issue Wu-Tang record that no one else will hear if he doesn’t want them to.

Securities arrests don’t happen by accident, and they don’t happen just because someone has committed securities fraud.  There is so much securities fraud that practically anyone involved the markets beyond the retail investor level could be charged with something. Many investigations are ongoing at any given time, and only a few can (or will) be prosecuted–and prosecuting someone as rich as Shkreli is always a political decision.

This is a message:

Rook the proles as much as you want, but don’t scream it to the world. We have a good thing going here, sonny, and we don’t tolerate people who might wreck it.

Despite his cartoon-villain behaviour, Shkreli is far from the worst CEO in America.

Billionaires may do as they please. There is only one rule: “Don’t destroy the game.”

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Chinese Stock Market Woes and the Pre-War World

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On July 9, 2015

6 Comments

Bloomberg:

China is bolstering efforts to arrest a selloff that has rippled through risk assets globally, banning major stockholders from selling stakes as more than half the country’s listed companies are suspended from trading.

Expect some ripple effects, given that a LOT of people can’t sell formerly liquid assets—if they need money they will need to sell offshore assets.

As of this writing, the stock market is slightly up–but yeah, that’s with over half the companies frozen and with vast efforts by the government to funnel money into those that aren’t frozen. A ton of investors are still selling what they can.

Let’s talk China for a bit. I’ve long said that China is the place to watch: It is now a larger real economy than America’s, with a larger population, and it is the largest industrial country in the world. Making stuff, real material stuff, still matters. Americans trumpet innovation, but Britain was still producing more patents than America for years after America was the biggest economy in the world; the stuff just wasn’t made in Britain.

Commodity prices have been dropping in virtually every commodity, not just oil. This is driven by, yes, China, and it affects every commodity exporting country in the world.

(Insert ritual cursing out of Canadian Prime Minister Harper for his policy of doubling down on oil and abandoning manufacturing, thus critically damaging a mixed economy policy well over 100 years old.)

China has been vastly overbuilding infrastructure and real-estate for some time. The media is replete with stories of vast tracts of uninhabited high-rises and so on. Much of what has been built is of dubious quality (not necessarily entirely bad, if it has to be rebuilt, from an economic viewpoint, but disastrous from an environmental one). Peasants in China love their lives; workers hate theirs, even though workers have much more money. This is a direct analogue of Western industrialization, by the way, people had to be forced off the land. Early industrialization makes life much worse for most people directly involved.

I can’t speak directly to Chinese leadership, but I’d guess that we’re now reaching the point where the last competent people are near the end of their careers.  Soon the Communist party will be run largely by princelings: entitled, greedy, and short-sighted.

China is a violent nation. Huge industrial protests happen all the time, entire villages fight (and sometimes win) against army units, etc. The violence is often savage—hand-to-hand melee with iron rods and so on.

One wonders why the Communist party keeps cracking down, installing more surveillance, etc, etc. If they lose control, or if they don’t make it to the airport before the mob, they and their entire families will die, and die messily, or worse.

If things go really pear-shaped in China, the Communist party WILL blame foreigners. You can bet every cent you have on it. War is possible. China is making the necessary preparations and pre-war blocs are forming.

Now, this stock market crash isn’t necessarily the precipitating event. I doubt it is, and even if we look back in 20 years, in the midst of the sweet nuclear glow, and conclude it was, we won’t know for some time that it is.

But we are in a world which is a ton more dangerous than most people, many of whom buy into this “the world is getting less violent” stuff, are willing to believe. Yeah, the world is less violent than it was for most of the post-WWII period, but such periods, well, they end, when the conditions which made them possible end.

The Chinese can still print a ton of money. The lesson the elites took from the Financial Crisis has been “just print money if people who matter are hurting.” The Chinese and Westerners put different groups of people into their “who matters” categories, but both are willing to run the virtual printing presses.

What This Means: It’s likely that the situation won’t go really pear-shaped until such time as running the printing presses stops working as a preventative to staving off disaster. Unless until someone gets stupid and doesn’t run the presses when they should because they think the people suffering don’t matter enough to bother with.

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Meanwhile, in China, There’s a Huge Stock Market Crash

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On July 6, 2015

9 Comments

It has dropped about 30 percent in the past three weeks, and today:

BREAKING: CHINA’S NATIONAL SOCIAL SECURITY FUND (PENSION FUND) ORDERS ALL ITS ASSET MANAGERS “NOT TO SELL A SINGLE STOCK” – CAIJING MAGAZINE

Yeah.

And this:

In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company which in turn would be aided by a direct line of liquidity from the central bank.

China has also orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

Do I need to explain that this is really, really stupid? The Chinext had higher price-to-earnings ratios than Nasdaq when it crashed. These valuations are insane; they do not make sense. This is stock market as ponzi scheme.

Stock markets are socially useful for only three things:

1) IPOs—so that companies can get money unencumbered by debt to undertake large projects. (These days, usually so the founders can cash out, which is at best a limited social good.)

2) Secondary stock offerings; same thing.

3) As Keynes pointed out, to give sociopaths something to do.

There are better ways to deal with these and all of the other supposed advantages of stock markets. (For example, if you want people to be able to share in the success of companies, just tax them and distribute. We would be hard-pressed for a more uneven method than the one we’re using today.)

Stock markets are largely useless to the real economy at this point. But when they go wrong, they can do immense damage to the real economy IF regulators and politicians and central bankers treat them as anything but a game in which money is moved from one set of hands (investors), to another set of hands (brokers, bankers, and since the introduction of stock options as the main way of paying executives, high ranking corporate wankers). Stock markets are snake pits of fraud and conflict of interest and everyone professionally involved in them must be treated as “a criminal the second they can get away with it.”

It’s time to change stock markets entirely so that they are useful again for raising funds for new companies or major new projects without debt and are not so dangerous to the rest of the economy. I suspect the best way to do this is to shut the entire current racket down, mandate dividends and controlled buybacks for all remaining stock companies (public stock companies in the US have dropped by half in the last 20 years anyway), and move to a new model, whatever that will be.

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The Fed’s Taper Decision

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On December 18, 2013

12 Comments

The Fed had finally decided to reduce purchases (from 85 billion a month to 75 billion.)  I will simply note that 10 billion from the Fed doesn’t matter all that much when other Central Banks (like the the Bank of Japan) are also doing the same thing (and Japan is talking about increasing such purchases) and when China is creating far more new money than the US.

China does have currency controls, but they are less and less effective, but most other countries do not.  It matters little if it is Japan or the US engaging in these policies, the money goes transnational.

I do not, thus, expect this to have much effect.  So long as developed nations banks are as a group flushing the markets with money, and so long as China does have a financial crisis, this economy can go on for many more years like this, especially as the various bubbles are being reinflated, in large part with leaking Chinese money.  Expect the stock market to continue to rise, with occasional selloffs, but generally in an upwards trend.  Expect housing prices in most markets to continue to rise as well.  Expect large corporations, especially financial corporations, to continue to make money.  Expect the rich to continue to get richer.

Don’t expect that to mean your personal economy will get any better, mind you.  Any improvements will be marginal.

 

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