Always Watched, Always Monitored, Always Recorded - Vivek Kaul's Diary
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Always Watched, Always Monitored, Always Recorded

Mar 2, 2016


BALTIMORE - When we left you yesterday, we were discussing the War on Cash - the push by governments to abolish physical currency.

It is a fraud. The idea is not to fight crime or boost the economy, as its proponents claim. It is part of a bigger campaign by the Deep State to take more control over your money...and your life.

We'll return to our theme in a moment. But update on the markets and the economy.

Trade Slump

It came out last week that world trade did indeed fall in 2015. It was the first time this had happened since 2009.

Starting at the end of last year, we began following the trains, trucks, ships, and sales of 'yellow machines' - backhoes, loaders, bulldozers, etc. - and watching them all slow down.

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Sure enough, they were telling us something important. Reports the Financial Times:

  • The value of goods that crossed international borders last year fell 14% in dollar terms.

Most notably, a decline in world trade means China is not exporting as much merchandise as before. This, we guessed, would mean a greater outflow of foreign exchange reserves from China's central bank...and make it more difficult for it to prop up the exchange value of the renminbi.

(A country accumulates foreign exchange reserves when it exports more than it imports. In the case of China, dollars, euro, etc... flow into the country in exchange for Chinese-made goods. This foreign currency builds up as reserves at the central bank. It can then dip into this stash to buy its own currency and prop up its value.)

The Chinese government denied it. And it warned billionaire speculator George Soros not to short the renminbi. But as in the old Soviet days, no rumour is confirmed until it is officially denied.

And sure enough, yesterday's Financial Times brought news that the renminbi was slipping:

  • This morning, the People's Bank of China [China's central bank] set the reference rate for the renminbi, around which the currency is allowed to trade, weaker by 0.17% and lower for a fifth straight session.
  • It was both the equal-largest depreciation and longest streak since the first week of January, when the currency's movements spurred heightened volatility in global financial markets.
  • The renminbi's weakness comes despite comments from Zhou Xiaochuan, the PBoC's governor, at the start of the G20 finance ministers and central bankers meeting last Friday that there is 'no basis for persistent renminbi deterioration.'

Cruisin' for a Bruisin'

Back in the US, the Dow fell 123 points yesterday. But judging from the prices they pay, investors are still wildly optimistic.

You may recall that it was the price-to-earnings-to-growth ratio - or PEG ratio - that made a young portfolio manager at the Fidelity Magellan mutual fund named Peter Lynch so successful. (His fund went on to outperform the market by a whopping 13.4% a year annualised.)

The PEG ratio looks at the relationship between a stock's price-to-earnings (P/E) ratio and the consensus forecast for earnings-per-share growth.

According to Lynch, when a stock's PE ratio is equal to its growth rate - a PEG ratio of 1 - it's fairly priced. When the ratio is high, investors are willing to pay a lot for future earnings growth.

Similarly, when the PEG ratio is low, it means investors are paying little for growth. And when it is at an all-time high - as it is now - it means investors are cruisin' for a bruisin'.

Not that we care; we hold plenty of cash and gold in case of an emergency.

Cameras, Microphones, Sensors

So, let's turn back to the War on Cash.

There is a battle going on between tech darling Apple and the FBI.

To fill you in...the FBI wants Apple to unlock data on an iPhone used by one of the attackers involved in the San Bernardino shootings last December.

Apple says that supplying the FBI with the information needed to unlock the data will leave all iPhone users vulnerable to hackers.

The fight concerns much more than whether the feds will be able to hack your smartphone. They will soon have access to your whole life. The New York Times explains:

  • Today's smartphones hold a lot of personal data - your correspondence, your photos, your location, your dignity. But tomorrow's devices, many of which are already around in rudimentary forms, will hold a lot more.
  • Consider all the technologies we think we want - not just better and more useful phones but cars that drive themselves, smart assistants you control through voice or household appliances that you can monitor and manage from afar.
  • Many will have cameras, microphones, and sensors gathering more data and an even more sophisticated mining effort to make sense of it all. Everyday devices will be recording and analyzing your every utterance and action.

Rats in a Cage

What would the feds do with that kind of information?

Here are the Chinese, also in yesterday's Financial Times, giving us a heads up:

  • Beijing's internet watchdog has silenced an outspoken property tycoon known as The Cannon by shutting his popular social media account...

A push of a button. And no more 'illegal information that had caused a bad impact', said the regulators.

Isn't the Internet wonderful?

In the old days, you'd have to break into a newspaper office and smash the printing press... or get a court order to padlock the premises. Now, we have 'Internet watchdogs' who just push a button.

And wouldn't it be nice for the Deep State if all your financial information...and the control of your money...were all online too?

In Margaret Atwood's dystopian novel, The Handmaid's Tale, a future US has turned into a police state. The authorities control people with electronic money cards. Like rats in a cage, they get their rations...until the watchdogs cut them off.

If the government gets its ways, this could be the real future, not just fiction. Removing cash from the system is just one big step along the way.

But there is more to the story...much more...

Tune in tomorrow.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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3 Responses to "Always Watched, Always Monitored, Always Recorded"

Damodar Vinayak Bale

Mar 2, 2016

There is a "Saying" in one of the dialects of "HINDI" language. It says:- "POOTA SOOPOOTA TOA KAA DHANASANCHAYAA", "POOTA KOOPOOTA TOA KAA DHANASANCHAYA?" Meaning:- "If one has a worthy son, why should he accumulate wealth?" and "If one has a unworthy son, why sould he accumulate wealth?".
There is certainly a very good message in this old saying. "Human Relations & Wealth i.e. Economy."


uday pasricha

Mar 2, 2016

While the small number who pay taxes in India would imply the huge presence of black money, It is important to accept that Black money is not just income by evasion of taxes but a continuous cycle of formation of black capital feeding the black economy. If agri income is tax free then it is more accurate that we should say that a large portion of white money is being "involuntarily" converted into Black money on a daily basis. Many studies have indicated that the black economy is a large percentage of the Indian economy. Any anecdotal survey will show that even if we assume no one wants to pay any tax, the aspiration of any business or manufacturer cannot be to evade 30% to 50% of his turnover, as that is capital. The desire at best would be 2 to 3% of total turnover or in low single digit even if there is no profit, but has to be far less than the 30% to 50% which many have estimated as the share of black money. This is why amnesty schemes by any Government yields little or has little impact on the vast pool of Black capital. Getting to that hoard is perhaps 100 times greater than trying to find the small black income the Government keeps trying to catch. This does not imply that evaders should be let free, just to emphasise the error in terminology & focus. Though few business may admit, there is the constant need to create black money for the dozens of essential needs starting with housing, getting permissions, getting orders, and the relentless political pressure for election funding at local state levels even if national elections tries to clean up their act. The "involuntary" quantum need for black money is far greater than any desire to earn tax evaded income. The reason why many who get raided have heart attacks - is because most likely the money found is capital and rarely their own. Differentiating
black income from black capital is important and ways to help individuals and business requiring - less black money, just to do business should be the key friendly way to try to win this fight. Black money generated from evaded taxes from legitimate income from business is relatively an insignificant portion of black money being "involuntarily" generated every day for non income needs.


Sam Francis

Mar 2, 2016

Thank you Vivek, your articles are always so insightful.

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