Communism VS. Resource Based Economy – A Definitive Guide & How RBE Will Arise

Communism VS. Resource Based Economy – A Definitive Guide & How RBE Will Arise

One of the hottest topics when it comes to a Resource Based Economy is exactly how close is it to communism, how they differ, and whether or not they’re essentially the same thing. This has been the subject of much debate and has produced some rather heated discussions in more than a few online forums, some of which you’ve probably been witness to if you’ve been around the community for any decent length of time. Since communism can be a very passionate subject for many individuals (and with good reason, considering its attempted implementation has literally killed millions of people in the past) we figured we would try to clear up a few things. And with the amount of misinformation out there regarding this subject, it’s about time someone gave a definitive, informative, and honest answer to this question.

So, the million dollar question – Is “Resource Based Economy” just a fancy, new-age way to say “Communism”?

Short answer: Yes and No

Slightly longer answer: It depends on who you listen to, what specific definition/form of communism you are talking about, and even your interpretation of some things.

And for those of you who simply have to know all the details…

What Exactly Is Communism?

While the idea of Communism itself has been around for quite some time, tracing its history back literally thousands of years, it became popular in modern day through the works of Karl Marx and Friedrich Engels, who both lived around the middle of the 19th century and wrote the well-known, widely circulated “Communist Manifesto.” It was in this document, as well as a few other lesser-known works they produced around the same time, that the general ideas we understand as modern communism took shape.

It’s important to note, however, that this was only the beginning of what was about to take place. While they outlined the ideas of what communism was, how we might get there and the events that could possibly transpire, there was a great deal of room for individual interpretation and implementation, which has consequently made the subject much more complex. Their ideas were so widely adopted, adapted, debated, and built upon, that between what exists only in theory, what has existed in the past, and what actually exists today, there are about as many different forms of communism as there are different makes of cars on the highway.

This is why it’s difficult to pinpoint a single meaning of communism and exactly what it implies. It really depends on where you look and who you ask. Even the definition of the general term “communism” varies, simply depending on which source you go to, and it’s not easy to get a straight answer on exactly where they all come from. You almost have to be a scholar to understand all the details of this subject.

Go to one site and it sounds like an altruistic utopia. Read a bit further and it sounds like something out of an Orwellian nightmare.

For instance, take just what’s found on

“1. a theory or system of social organization based on the holding of all property in common, actual ownership being ascribed to the community as a whole or to the state.
2. (often initial capital letter) a system of social organization in which all economic and social activity is controlled by a totalitarian state dominated by a single and self-perpetuating political party.”

And it continues…

“British Dictionary definitions for communism

1. advocacy of a classless society in which private ownership has been abolished and the means of production and subsistence belong to the community

2. any social, economic, or political movement or doctrine aimed at achieving such a society

3. (usually capital) a political movement based upon the writings of Marx that considers history in terms of class conflict and revolutionary struggle, resulting eventually in the victory of the proletariat and the establishment of a socialist order based on public ownership of the means of production See also Marxism, Marxism-Leninism, socialism

I could list many more short definitions from other sources that all sound different, but I think you get the point.

And this perfectly highlights one of the main differences between communism and a resource based economy. You understand why you get so many definitions when you understand…

“Communism, The Theory” is not the same as a “Communist Society”

And both of these are vastly different from the currently practiced “communist-state” – a variation of Marxism/Leninism.

This is the “ah-ha moment” you’ve been waiting for.

The main difference between a resource based economy and communism is that the idea of communism itself is a theory of progression of a society, and many varying details have to do with exactly where a particular society is along that progression, and also how exactly it ends up at eventual, complete communism, or what is known as a “communist society.”

In reality, when most people refer to communism, (especially when they say it still uses money, government, or social class) they are actually referring to a communist-state. This is what China, Cuba, and Vietnam are currently ruled under today. The problem with the communist-state is it lends opportunity for its leaders to take advantage of and abuse the system, and consequently, the modern communist-state is often characterized by massive corruption, poverty and wealth inequality, with the few in charge reaping most of the benefits.

In reality, this is simply more of a government-run form of capitalism, which is nothing like the actual “communist society” that the theory of Communism and the communist-state are supposedly aiming to achieve (and still haven’t, and probably never will – simply because of the inherent flaws in the communist theory’s design to begin with).



The Actual, Theoretical “Communist Society” is Very Close to a Resource Based Economy

– just with less actual planning, and the fact that the original idea was thought up over 150 years ago, so there are some different emphasis…

The endpoint of the theory of communism, aka the “communist society” – a classless, stateless, moneyless society is pretty close to what could be envisioned as the idea of a resource based economy today.

And yes, this is one of the generally accepted definitions of the communist society. While this definition is never stated verbatim by either Engels or Marx as far as I have seen – please correct me if you’ve seen it – it is generally outlined within their documents, as described quite nicely in this Reddit post:

“From Chapter II of The Communist Manifesto,


When, in the course of development, class distinctions have disappeared, and all production has been concentrated in the hands of a vast association of the whole nation, the public power will lose its political character. Political power, properly so called, is merely the organised power of one class for oppressing another. If the proletariat during its contest with the bourgeoisie is compelled, by the force of circumstances, to organize itself as a class, if, by means of a revolution, it makes itself the ruling class, and, as such, sweeps away by force the old conditions of production, then it will, along with these conditions, have swept away the conditions for the existence of class antagonisms and of classes generally, and will thereby have abolished its own supremacy as a class.

In place of the old bourgeois society, with its classes and class antagonisms, we shall have an association, in which the free development of each is the condition for the free development of all.



Engels writes on the stateless aspect in Socialism: Utopian and Scientific,


As soon as there is no longer any social class to be held in subjection; as soon as class rule, and the individual struggle for existence based upon our present anarchy in production, with the collisions and excesses arising from these, are removed, nothing more remains to be repressed, and a special repressive force, a State, is no longer necessary.

The first act by virtue of which the State really constitutes itself the representative of the whole of society — the taking possession of the means of production in the name of society — this is, at the same time, its last independent act as a State. State interference in social relations becomes, in one domain after another, superfluous, and then dies out of itself; the government of persons is replaced by the administration of things, and by the conduct of processes of production.



In Section 18 of Principles of Communism, Engels addresses the moneyless aspect,


Finally, when all capital, all production, all exchange have been brought together in the hands of the nation, private property will disappear of its own accord, money will become superfluous, and production will so expand and man so change that society will be able to slough off whatever of its old economic habits may remain.”

That sounds pretty close to a resource based economy to me.

And from Wikipedia:

In Marxist thought, communist society or communist system is the type of society and economic system postulated to emerge from technological advances in the productive forces, representing the ultimate goal of the political ideology of Communism. A communist society is characterized by common ownership of the means of production with free access[1][2] to the articles of consumption and is classless and stateless,[3] implying the end of the exploitation of labor.


Communism is a specific stage of socioeconomic development predicated upon a superabundance of material wealth, which is postulated to arise from advances in production technology and corresponding changes in the social relations of production. This would allow for distribution based on need and social relations based on freely-associated individuals.[4][5]


The term “communist society” should be distinguished from the Western concept of the “communist state“, the latter referring to a state ruled by a party which professes a variation of Marxism–Leninism.

“Superabundance of material wealth”

“Advances in production technology”

“Corresponding changes in the social relations of production”

“Free access to articles of consumption”

Sound familiar?


Though… There Are A Few Differences

The differences may be viewed as trivial by some, and huge by others. Some say that both social constructs are great and either one is fine, while others say the differences don’t matter and either one of them will bring about untold suffering and misery. Others argue that some of the RBE ideas were intended/implied in communist society, but were simply not voiced, while others say that those differences are what make the two systems completely different. Either way, it’s interesting and informative to look at a few of these ideas.

The main (and indisputable) differences between the two economic systems, for the most part, are how this futuristic, post-scarcity society would be achieved. Many of the transitory systems that were implemented to try and reach the end-point of communist society resulted in disaster. Corruption, greed, forceful execution, the fact that the societies still had to interact with the capitalistic world at large, and the lack of a solid vision or plan as to what the communist society end-result would entail doomed the system before it even had a chance.

Eloquent as always, Peter Joseph sums up the flaws of the communist-state and its workings quite nicely:

In the earlier stages of the progression toward communism, many things are advocated to be literally implemented by force, and all-out “class warfare” is said to be utilized to literally eliminate (even by armed violence, if necessary) the status of the elite (the bourgeois) and achieve the endpoint of the eventual communist society. Obviously, this would be completely against the principles of a resource based economy.

Straight from the Communist Manifesto, here are some of the possible steps toward achieving a communist society:

  1. Abolition of property in land and application of all rents of land to public purposes.
  2. A heavy progressive or graduated income tax.
  3. Abolition of all rights of inheritance.
  4. Confiscation of the property of all emigrants and rebels.
  5. Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.
  6. Centralization of the means of communication and transport in the hands of the State.
  7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
  8. Equal liability of all to work. Establishment of industrial armies, especially for agriculture.
  9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.
  10. Free education for all children in public schools. Abolition of children’s factory labor in its present form. Combination of education with industrial production.

Confiscation of property? Heavy income tax? Abolition of inheritance? Industrial armies?

Are you kidding me? No wonder this was a complete catastrophe…

Did they think people would simply willingly hand over all they own and tell the government to put them to work in the fields until that mythical day when a communist society magically comes to life?

Another main principle of communism that seems a little different than a resource based economy is “From each according to his abilities, to each according to his needs.”

According this rule, if taken literally, if society deems your utmost contribution to be sitting behind a desk, programming computer algorithms for resource distribution, you could very well be forced to work at this position, hypothetically speaking. And this, technically, could be an aspect of one of the stages that the theory of communism would use to reach the hypothetical communist society.

“To each according to their needs” probably wouldn’t include 24/7 access to jet-skis or unlimited round-trips to Tokyo, but in a resource economy at its pinnacle, not only is this possible but it is expected to be a general principle. In an RBE this phrase would probably resemble something more like “From each, a contribution of their desire; to each, according to their needs and desires, within the reasonable capabilities of our resources and production methods.”

However, for clarification, in a fully-developed communist society, you are free to pursue your passions and realize “self-actualization,” or in other words, you are free to pursue your own ambitions and desires, as described in Marx’s Theory of Alienation.

Another minor difference between communist society and a resource based economy that some have said exists, although this one may be debatable, is that in a resource based economy there seems to be more of an emphasis on utilizing the planet’s resources in the wisest ways possible to create access to all goods and services, not just based on needs, but on individual desires as well. It’s noteworthy that in Marx’s time, resource scarcity was not anywhere near as pressing an issue as it is today, and this is truly one of the hallmarks of a resource based economy, especially given our current dual plights with peak oil and global warming.

A couple other things to consider when comparing the two are the facts that the technology wasn’t yet available for much of the automation that Marx and Engels had envisioned in the communist society. Computers that could control and distribute resources via algorithms were science-fiction, electricity was in it’s infancy, communication was slow and laborious, and cars hadn’t even been invented yet, so there was no real plan as how this society would actually operate, or even be designed. In contrast, today we have all of this technology and more, giving us the capability to draft out and even implement such a society, designing in advance everything we could possibly think of, down to the types of materials that the walls of our 3D printed homes will be made of. We are much, much, more capable these days… to say the least.

Another aspect of the mindset that came with the communist platform to thoughtfully consider is the fact that it was written before the occurrence of two world wars, and before millions of people died under the rule of communist leaders, so there was far less of a concern with forcefully pushing communism on the world and what effects it could possibly have.  Back then, people were used to forcing their will upon others, especially in a societal sense, which is quite different from today, and the goal was viewed as more important than the means by which it was achieved. Now, the complete opposite is true. Due to the neglectful actions of past leaders, many individuals are terrified of communism and see its only possible outcome as a complete totalitarian state that emerges after the unnecessary deaths of millions more – and with its history, they have every right to think that.

So, the RBE community and Communists/Marxists may have roughly the same end point in mind, but given the negative history associated with communism now, and how much fear and hatred exists surrounding the subject, we need a vastly different approach of how to actually get there, and a complete overhaul of the theory of what will actually work as a transition period. So…


How Will A Resource Based Economy Make The Transition?

For the most part, the main proponents of a resource based economy advocate a top-down approach. They say world leaders would come together some day in the future and agree (possibly after the general public is well-enough informed and demands it) that this is the best way for humanity to live and begin to implement a system such as this for all individuals to follow. Unfortunately, it has also been said that this will most likely only come after a total economic collapse, after which the transition to a resource based economy isn’t guaranteed (or even likely) and could be instead supplanted by a one-world government or New World Order. Doesn’t that sound nice?

Aside from not much getting done, the problem with this sort of implementation is that when you have leaders dictating what sort of economic system the world is to follow, not only will you have many people who will fight tooth and nail against it and do everything in their power to fight the system (especially those against communism, most likely resorting to violence and even possibly war), but you also have world leadership telling the general population what to do, which is by its very nature completely contradictory to the general idea of a resource based economy.

Therefore, the only way to transition into an actual resource based economy is completely and utterly voluntarily, from the ground up, and nothing else will work. Otherwise, it wouldn’t truly be a resource based economy to begin with, and there would be so much backlash during the actual transition period that it would be doomed from the start, just like communism. Leaders may come together and suggest it, but they cannot force it. To do so would violate one of the main principles of a resource based economy to begin with – voluntary participation.

Furthermore, our leaders probably wouldn’t even suggest it until they see that society is capable of working together and cooperating in ways much more harmoniously than the present, which is why we must do everything we can to build and implement as many aspects of a resource based economy into our lives as we can. To demonstrate that it is possible. To show there’s a better way of life. To wake people up and help them realize that they do have other options, that they have the power and wherewithal to turn them into reality, instead of the mindless zombie ritual of our 9-5 existence that is simply called life for so many of us.

While I know this post will anger some individuals, I also hope that it can help bridge the two communities, with a call for us to work together. Ultimately, even though there may be some minor differences in the end-goal of the two, I believe that many “true” Communists and Marxists have the same visions for a future society as the Resource Based Economy movement. And I also hope that this article can provide a forum for people to discuss and engage in ways to build this bold, new world.

In reality, it’s only by understanding each other’s point’s of view, overcoming our differences, building on our strengths and similarities, compromising where we must, cultivating and practicing these principles through living and working together, and building something greater than ourselves, that we will eventually be able to build a society that resembles an actual resource based economy.

This is why we are being called to build sustainable communities, powered with their own green technology, that produce their own food and water with technologies like FarmBot, aquaponics and permaculture. We must go local in production with many things, utilizing 3D printing, Contour Crafting, waste recycling, and further developing open source designs such as the Global Village Construction Set. Examples of places like Regen Villages and Tamera can be used as a blueprint and their successes built upon. It’s time to share our ideas and openly work together to achieve the highest good of all, practicing principles such as those that One Community Global has laid out. Much progress will be made when we start collaborating more via platforms like, and supporting each other in our business endeavors to develop new technologies and work together in cooperatives like Mondragon and Evergreen.

The information and technology we need to do this is there – it’s combining it into solid ideas and living it in our own lives on a daily basis that will make the difference. There’s no time like the present to do this. The tools and resources we have been given in our present world are unprecedented in the history of our planet, and we no longer have any excuses to not create the world we desire.

As an end note – if there’s anything that you find to be incorrect about this article, please let me know by commenting below or sending an email to Please provide references to investigate, and I will do my best to revise it as necessary. However, I won’t change it just because somebody simply disagrees and say’s I’m wrong without any documentation to back it up. It is my goal and intention for this document to be as accurate, honest, and up-to-date as possible, and it’s definitely not here to simply please everyone.

So let us heed the warnings of our fathers and learn from their mistakes, but also let us not discount our true potential and stay stuck in the past, especially at the cost of our own peril, when we need to work together – now, more than ever.


This Huge Robot Will Drive Up and Build You a House [Video]

This Huge Robot Will Drive Up and Build You a House [Video]

Originally on by Andrew J. O’Keefe II


Bricklaying is a very old, traditional way to build a house—except now we have robots doing it faster than people. Hadrian X, a construction robot by Fastbrick Robotics, is a laser-guided, fully-automated bricklaying system. Its aim? Building brick houses in days instead of weeks.

Fastbrick Robotics spent a decade and millions of dollars developing Hadrian X. Now, it’s almost ready for commercial deployment. Recently, the company announced an agreement with Archistruct Builders and Designers to use the robot to build 11 homes in Perth, Australia.

“The framework agreement also presents a fantastic opportunity for our commercial pilot, where we will demonstrate to the world the capabilities of the Hadrian X,” Fastbrick Robotics CEO Mark Pivack told The West Australian.

We covered the Hadrian brick-laying system last year but didn’t get the chance to see it in action. The company recently released a video showing what it can do.

How does Hadrian X work? Workers load the machine with bricks. It cuts them to size and feeds them up a conveyor belt inside a long, crane-like arm. Guided by a computer design and lasers, the arm swings into place and a robotic gripper at the arm’s end precisely places each brick. The system coats the bricks in a glue-like adhesive in place of traditional mortar.

The whole system is built into a truck which can be driven up to the construction site.

The really amazing bit? Hadrian X can lay up to 1,000 custom-sized bricks per hour, and according to Fastbrick, it will be able to build the brick frame of a full home in just days.

Of course, not all homes are of brick, nor are all homebuilding robots like Hadrian. Another approach, long in the works, is the 3D printing of houses using printers that extrude concrete or other materials. USC’s Behrokh Koshnevis was one of the earliest to work on the technology with his Contour Crafting system. In recent years, China’s Winsun has made headlines too. Even 3D printing using natural materials, like mud, are beginning to look interesting.

The bigger picture here? For Fastbrick, it’s about automating jobs, like bricklaying, that are already experiencing worker shortages as younger generations seek employment elsewhere. More than that, it’s about reducing the cost and time investment of building homes, with the hope we’ll be able to supply more of them to areas where housing is most needed.

With up to 100 million people homeless worldwide, the world could use more self-contained systems of construction and homebuilding to scale for cheap. And even as the future of work remains uncertain, with tech like this we’ll at least have a stronger foundation to build from.

Image credit: Fastbrick/Gary Paull/YouTube

The Next Employment Crisis Is Here: Job Cuts At U.S. Companies Jump 35 Percent In April

The Next Employment Crisis Is Here: Job Cuts At U.S. Companies Jump 35 Percent In April

Originally from

By Michael Snyder, on May 5th, 2016


Should we be alarmed that the number of job cuts announced by large U.S. companies was 35 percent higher in April than it was in March?  This is definitely a case where the trend is not our friend.  According to Challenger, Gray & Christmas, U.S. firms announced 65,141 job cuts during April, which represented a massive 35 percent increase over the previous month.  And so far this year overall, job cut announcements are running 24 percent higher than for the exact same period in 2015.  Meanwhile, on Thursday we learned that initial claims for unemployment benefits shot up dramatically last week.  In fact, the jump of 17,000 was the largest increase that we have seen in over a year.  Of course the U.S. economy has been slowing down for quite a while now, and many have been wondering when we would begin to see that slowdown reflected in the employment numbers.  Well, that day has now arrived.

At this point, U.S. firms are laying off people at a rate that we have not seen since the last financial crisis.  Here is what Zero Hedge had to say about these latest numbers…

While one can debate the veracity of the BLS’ seasonally adjusted data, one thing is certain: when a company announces it will layoff thousands, it will. So for all those who suggest that all is well with the US jobs picture based on initial claims reports, here is the latest report from Challenger according to which the pace of downsizing increased in April jumped by 35% to 65,141 during the month of April, from the 48,207 layoff announcements in March.

Looking further back, in the first four months of 2016, employers have announced a total of 250,061 planned job cuts, up 24% from the 201,796 job cuts tracked during the same period a year ago.This represents the highest January-April total since 2009, when the opening four months of the year saw 695,100 job cuts in the aftermath of the biggest financial crisis in modern history.

So what is causing this?

Why are firms laying off so many people all of a sudden?

My readers are very well aware of the pain that the energy industry is experiencing at the moment, but surprisingly it was not the energy industry that announced the most job cuts in April…

Computer firms announced 16,923 job cuts during the month; the highest total among all industries. That total includes 12,000 from chipmaker Intel, which is shifting away from the traditional desktop and laptop market and toward the mobile market. To date, computer firms have announced 33,925 job cuts,up 262 percent from a year ago, when job cuts in the sector totaled just 9,368 through the first four months of the year.

Yes, the U.S. energy industry has lost well over 100,000 good paying jobs since the beginning of last year, but the downturn is so much broader than that.  All over America corporate earnings are down, and when earnings fall it is inevitable that layoffs will follow.

As I have written about previously, earnings for companies listed on the S&P 500 have fallen a total of 18.5 percent from their peak in late 2014, and it was being projected that corporate earnings overall would be down 8.5 percent for the first quarter of 2016 compared to the same period a year ago.

And in the chart that I have posted below, you can see that corporate profits after tax have been falling precipitously since peaking in mid-2015…

corporate profits

As this new economic downturn intensifies, the layoffs will accelerate.

In plain English, that means that a whole lot more people will be losing their jobs.

Unfortunately, a very large percentage of Americans didn’t learn anything from the last crisis and are living on the financial edge.  In fact, the Federal Reserve says that 47 percent of all Americans cannot even pay an unexpected $400 emergency room bill without borrowing the money or selling something.

So just like back in 2008, we are going to see huge numbers of people unable to pay their bills when they lose their jobs.  Foreclosures are going to skyrocket, and lots and lots of families are going to be put out into the street.

This is why I have been preaching the importance of having an emergency fund for years.  It is absolutely imperative to have an emergency fund that can cover your bills for at least six months in the event that there is a job loss or some other sort of major disaster strikes.

If you have not done this already, you are probably already too late.

The cold, hard reality of the matter is that it would take most families quite a while to save up a six month emergency fund if they are starting from zero.

So if you are in this position and you lose your job, you may have to move in with family or friends when your money runs out.

I don’t mean to be cold, but this is the situation that we are facing.  The next employment crisis is already here, and it is going to get much, much worse.  No matter who becomes “the next president”, job cuts are going to accelerate and good jobs are going to become exceedingly difficult to find.

I am certainly not advocating that anyone give up.  If you still have a good job for the moment, tighten your belt and use this time to feverishly prepare the very best that you can.

Sadly, tens of millions of Americans believed that this bubble of false prosperity would keep on rolling, and so they wasted immense amounts of precious time and resources.  Now the day of reckoning is here, and vast numbers of our fellow citizens are going to discover the horror of being unprepared.

For Stan Druckenmiller This Is “The Endgame” – His Full ‘Apocalyptic’ Presentation

For Stan Druckenmiller This Is “The Endgame” – His Full ‘Apocalyptic’ Presentation


Originally From

Several days ago, hedge fund legend Stan Druckenmiller spoke at the Sohn Conference, delivering what may have been his most bearish fire and brimstone sermon yet, and in fact according to some buysiders who were present, its somber mood and lack of faux optimism was downright apocalyptic. And how can it not be when Druckenmiller said that while the Fed and policymakers have no endgame, markets do – hinting that one is rapidly approaching – and suggested that everyone should liquidate their equity holdings and buy a certain 5000 year old shiny asset, which as we reported earlier this week, is Druckenmiller’s “largest currency allocation.”

And just so everyone can appreciate what is keeping up at night one of the most illustrious investing minds of any generation (with a 30% average return from 1986 through 2010) below we repost his entire presentation delivered at the May 4 Sohn Conference, titled appropriately enough…

* * *

The Endgame

When I started Duquesne in February of 1981, the risk free rate of return, 5 year treasuries, was 15%. Real rates were close to 5%. We were setting up for one of the greatest bull markets in financial history as assets were priced incredibly cheaply to compete with risk free rates and Volcker’s brutal monetary squeeze forced much needed restructuring at the macro and micro level. It is not a coincidence that strange bedfellows Tip O’Neill and Ronald Reagan produced the last major reforms in social security and taxes shortly thereafter. Moreover, the 15% hurdle rate forced corporations to invest their capital wisely and engage in their own structural reform. If this led to one of the greatest investment environments ever, how can the mirror of it, which is where we are today, also be a great investment environment? Not a week goes by without someone extolling the virtues of the equity market because “there is no alternative” with rates at zero. The view has become so widely held it has its own acronym, “TINA”.


Not only valuations were low back in 1981 but financial leverage was less than half of what it is today. The capacity of credit inspired growth was still ahead of us. The policy response to the global crisis was, and more importantly, remains so forceful that it has prevented any real deleveraging from happening. Leverage has actually increased globally. Ironically from where I stand, that has been the intended goal of most policymakers today.


Let me focus on two of the main policies that have not only prevented a clean-up of past excesses in developed markets but also led to an explosion in leverage in Emerging markets. The first of these policies has been spearheaded by the Federal Reserve Bank in the US. By most objective measures, we are deep into the longest period ever of excessively easy monetary policies. During the great recession, rates were set at zero and they expanded their balance sheet by $1.4T. More to the point, after the great recession ended, the Fed continued to expand their balance sheet another $2.2T. Today, with unemployment below 5% and inflation close to 2%, the Fed’s radical dovishness continues. If the Fed was using an average of Volcker and Greenspan’s response to data as implied by standard Taylor rules, Fed Funds would be close to 3% today. In other words, and quite ironically, this is the least “data dependent” Fed we have had in history. Simply put, this is the biggest and longest dovish deviation from historical norms I have seen in my career. The Fed has borrowed more from future consumption than ever before. And despite the US global outperformance, we currently have the most negative real rates in the G-7. At the 2005 Ira Sohn Conference, looking at a more muted but similar deviation, I argued that the Greenspan Fed was sowing the seeds of an historical housing bubble fed by reckless sub-prime borrowing that would end very badly. Those policy excesses pale in comparison to the duration and extent of today’s monetary experiment

The obsession with short-term stimuli contrasts with the structural reform mindset back in the early 80s. Volcker was willing to sacrifice near term pain to rid the economy of inflation and drive reform. The turbulence he engineered led to a productivity boom, a surge in real growth, and a 25 year bull market. The myopia of today’s central bankers is leading to the opposite, reckless behavior at the government and corporate level. Five years ago, one could have argued it was in search of “escape velocity.” But the sub-par economic growth we are experiencing in the 8th year of a radical monetary experiment and in Japan after more than 20 years has blown that theory out of the water. And smoothing growth over a cycle should not be confused with consistently attempting to borrow consumption from the future. The Fed has no end game. The Fed’s objective seems to be getting by another 6 months without a 20% decline in the S&P and avoiding a recession over the near term. In doing so, they are enabling the opposite of needed reform and increasing, not lowering, the odds of the economic tail risk they are trying to avoid. At the government level, the impeding of market signals has allowed politicians to continue to ignore badly needed entitlement and tax reform.

Look at the slide behind me. The doves keep asking where is the evidence of mal-investment? As you can see, the growth in operating cash flow peaked 5 years ago and turned negative year over year recently even as net debt continues to grow at an incredibly high pace. Never in the post-World War II period has this happened. Until the cycle preceding the great recession, the peaks had been pretty much coincident. Even during that cycle, they only diverged for 2 years, and by the time EBITDA turned negative year over year, as it has today, growth in net debt had been declining for over 2 years.Again, the current 5-year divergence is unprecedented in financial history!

And if this wasn’t disturbing enough, take a look at the use of that debt in this cycle. While the debt in the 1990’s financed the construction of the internet, most of the debt today has been used for financial engineering, not productive investments. This is very clear in this slide. The purple in the graph represents buybacks and M/A vs. the green which represents capital expenditure. Notice how the green dominates in the 1990’s and is totally dominated by the purple in the current cycle. Think about this. Last year, buybacks and M&A were $2T. All R&D and office equipment spending was $1.8T. And the reckless behavior has grown in a non-linear fashion after 8 years of free money. In 2012, buybacks and M&A were $1.25T while all R&D and office equipment spending was $1.55T. As valuations rose since then, R&D and office equipment grew by only $250b, but financial engineering grew $750b, or 3x this! You can only live on your seed corn so long. Despite no increase in their interest costs while growing their net borrowing by $1.7T, the profit share of the corporate sector peaked in 2012. The corporate sector today is stuck in a vicious cycle of earnings management, questionable allocation of capital, low productivity, declining margins, and growing indebtedness. And we are paying 18X for the asset class.

A second source of myopic policies is now coming from China. In response to the global financial crisis, China embarked on a $4 trillion stimulus program. However, because they had engaged in massive infrastructure investment the previous 10 years, and that was the primary stimulus pipe they chose; this only aggravated the overcapacity in the investment side of their economy. Not surprisingly, this only provided a short term pop in nominal growth. While we were worried about bank assets to GDP in 2012, incredibly, credit has increased by 70% of GDP in the 4 years since then. Just to put this in perspective, this means that since 2012 the Chinese banking sector has allowed credit to grow by the amount of the entire Brazilian GDP per year! Picture the entire Brazilian production in new houses and infrastructure. Incredibly, all this credit growth has been accompanied by a fall in nominal GDP growth from 15% to 5%. This is an extremely toxic cocktail for companies that have borrowed at 10% expecting 15% sales growth. Our strong suspicion therefore is that a large part of this growth is just credit flowing to otherwise insolvent borrowers. How else to explain the lack of NPL problem in heavy industries hit by lower prices and sales growth?

As a result, unlike the pre-stimulus period, when it took $1.50 to generate a $1.00 of GDP, it now takes $7. This is extremely rare and dangerous. The most recent historical analogue was the U.S. in the mid- 2000’s when the debt needed to generate a $ of GDP increased from  $1.50 to $6 during the subprime mania. Two years ago, we had hope the Chinese were ready to accept a slowdown in exchange for reform. Unfortunately, with the encouragement of the G-7, they have opted for another investment focused fiscal stimulus which may buy them some time but will exacerbate their problem. They do not need more debt and more houses.

As the chart shows, this will remove a major cylinder from the engine of world growth.

I have argued that myopic policy makers have no end game, they stumble from one short term fiscal or monetary stimulus to the next, despite overwhelming evidence that they only produce an ephemeral sugar high and grow unproductive debt that impedes long term growth. Moreover, the continued decline of global growth despite unprecedented stimulus the past decade suggests we have borrowed so much from our future for so long the chickens are coming home to roost. Three years ago on this stage I criticized the rationale of fed policy but drew a bullish intermediate conclusion as the weight of the evidence suggested the tidal wave of central bank money worldwide would still propel financial assets higher. I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself.

If we have borrowed more from our future than any time in history and markets value the future, we should be selling at a discount, not a premium to historic valuations. It is hard to avoid the comparison with 1982 when the market sold for 7x depressed earnings with dozens of rate cuts and productivity rising going forward vs. 18x inflated earnings, productivity declining and no further ammo on interest rates.

The lack of progress and volatility in global equity markets the past year, which often precedes a major trend change, suggests that their risk/reward is negative without substantially lower prices and/or structural reform. Don’t hold your breath for the latter. While policymakers have no end game, markets do.

On a final note, what was the one asset you did not want to own when I started Duquesne in 1981? Hint…it has traded for 5000 years and for the first time has a positive carry in many parts of the globe as bankers are now experimenting with the absurd notion of negative interest rates.Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation.


In My Humble Opinion, Alex Atuheire is a Modern-Day Saint

In My Humble Opinion, Alex Atuheire is a Modern-Day Saint

There are a few times in life when you meet someone that has such a great care for humanity and a deep respect for others and for life in general that it comes through in practically everything they do and shines a light on everyone around them. These people tend to come by on a somewhat rare occasion for me, at least, and when I do encounter them, they tend to have an impact on my life through their words and actions, even if I haven’t met them in person. Alex Atuheire is one of those people, and I am blessed to have the privilege of saying that he is my friend.

But of course, as wonderful a human being as Alex is, it’s not about him. For years, Alex has devoted a great deal of his time and efforts to helping impoverished children, orphans and young adults in the Kabale and surrounding districts of Uganda, operating from Bufuka village on the shores of Lake Bunyonyi. He first conceived of the idea in 2005 and in 2007 his original concept, BOVCP (Bufuka Orphans and Children Project) was founded. In 2011 the name was changed and Amatsiko (meaning “Hope” in Rukiga) was officially registered as a community-based organization, with the goal of helping children obtain much-needed resources and support to improve their quality of life.

Amatsiko 2A great deal of the children he helps have been orphaned by one or both parents, many who have died from HIV infection, which unfortunately is quite common in the area. While Amatsiko does not have the capability to provide housing for the many children in these situations as of yet, Alex and his team work with local communities to help find them homes, as well as provide them with nutritious food, clean water, clothes, bedding, support, community, love, spirituality, an education, and more…

Alex is originally from the Kabale area himself and is no stranger to the struggles that many individuals face when growing up in this region. After his parents divorced at the age of two, he, his four sisters and their mother all lived in their grandmother’s mud-house, with Alex having to beg neighbors for food on many occasions, and often going hungry. Several years later their father died in an accident and an already-bad situation became even worse.

As Alex experienced, himself, in Uganda it’s not uncommon for children to complete primary school but not have enough money to go on to secondary school and subsequently obtain a higher education. Alex wanted to become a doctor, and was fortunate enough to have found a sponsor in Canada who helped him complete secondary education, but after time his sponsor wasn’t able to continue to support him financially and Alex wasn’t able to go onto the tertiary level in his studies.

Amatsiko 3However, Alex still wanted to give back and contribute to the community where he grew up so he may help other children and young adults who are in similar situations compared to what he experienced himself. He witnessed firsthand the conditions that many individuals in the area are struggling to overcome, and how even simple things, like nutritious food, a proper education, and a loving home and family, could help these individuals rise above these conditions and subsequently help others to do the same.

At first it was just a concept that he had brainstormed, then it became an actual organization, and now ten years after the initial idea, Alex, his wife, Rebecca, Alphonse, and all the other individuals working with Amatsiko have now helped over 2,000 children obtain food, shelter, clean water, and much more.

Lettuce 1In addition to finding homes and guardians for orphaned and disabled children, they also help them meet their needs for basic nutrition and healthcare, they help install gardens for local families and educate them about farming methods and agriculture, they educate the local community about sanitation, hygiene, and prevention of diseases, with an emphasis on HIV, they provide mosquito nets to help prevent malaria, they set up clean-water systems for families, they provide guidance and counseling to orphans, vulnerable children, and their families, they encourage the moral and spiritual development of these children, they sponsor them through formal and higher education, and the list goes on…

In addition to this, it’s Alex’s and Amatsiko’s goals to build an orphanage to house many of the children they are helping, which would allow them to more closely monitor and interact with the children on a daily basis, as well as give them a space to hold health and hygiene workshops. Also, Alex would eventually like to make Amatsiko a self-sustaining organization, through income-generating projects such as chicken coops for egg production, which would not only provide the children with nutritious food, but could also provide a surplus that the community could sell for profit. Once these things are set up for the community, they will be able to expand and help even more people, without relying on donations.

Planting 1This is the eventual goal, and what I hope they achieve, as well. I may run a website called “Moneyless Society” but I also realize that we have to have money at this point for many things, especially if we’re looking to eventually create a resource-based-economy or world without money, where we utilize technology in a loving interest for the benefit of all with no exceptions. I’m all for using money to reach self-sustaining situations, and I think what Alex is doing is a perfect example of how we can use simple technology and ideas to work together and improve the lives of everyone involved (including, and especially, those that donate to these types of projects – as I’m sure many of you will agree, there is nothing in this world more fulfilling and nourishing to your soul than knowing you have truly helped someone.)

This is where the world is heading, in my humble opinion. More and more people are waking up and seeing the potential for what we can do to help each other. More and more people are fed up with the conditions that they see themselves and other people living in, and more and more people are starting to reach out to one-another, and help each other live better lives in any way they can, and Alex is right at the forefront of this movement.

Rebecca CircleWhen I think of Alex and what he does I feel the warmth of love inside my heart. I look at what he has accomplished and I am overwhelmed with a sense of compassion for others, for the joy and love he is able to help others experience. Looking at what is possible, what one person can conceive of and bring into realization, that can help so many people and make an impact in such a dramatic way in the lives around him, is inspiring to me and helps me realize the potential for each and every single one of us to reach out and help one another.

I saw a movie not too long ago called “St. Vincent.” It was a cute little movie (spoiler alert), where this grumpy old character, played by Bill Murray, ended up helping a neighbor’s child through some tough situations. And even though he wasn’t exactly the most likable guy at times, this child he helped ended up proclaiming him a saint for all the good things he had done in his life, for a project he was completing at his local school. If you haven’t seen it, it highly recommend it. It was a touching, heart-felt movie.

Alex 2And to bring it back to the beginning, to me, Alex is a saint, and I definitely wouldn’t say that about just anyone. And I really don’t care what anyone else thinks about it, either. Alex is one of those people in this world who has a heart so huge it has the capacity to change the world around him for the better and uplift people’s spirits to a level they didn’t know was possible. That, to me, is a saint.

And if the grouch that Bill Murray portrays in that movie can qualify for a saint, I think Alex could be Pope.

Every time I speak with Alex I feel nothing but the most sincere quality of love, the utmost gratitude, and a truly great desire emanating from him to do as much good in this world as he possibly can. It radiates from his persona like sunlight penetrating into the depths of my soul, it warms my heart, and it makes me want to be a better person. If we had more people in this world like Alex, it would be an incredibly beautiful place to live.

Thank you for all you do, Alex, Rebecca, Alphonse, Seth, Alison, Saturday George, Ronald, and anyone else behind the scenes, working with Alex Atuheire and Amatsiko, to make the lives of others a bit better every day. You are all an inspiration to me, and I support you 100%.

If you’d like to contribute to Alex and those at Amatsiko’s efforts to help these children and young adults, please visit their website and take a look at the different ways you can help make their lives a little (or maybe even a lot) better.

Thanks for reading,

Peace, Love, Light and Prosperity to All

Amatsiko 1