- Musical Chairs
Submitted by Jeff Thomas via InternationalMan.com,
You’re familiar with the children’s game of musical chairs. Ten children walk around nine chairs whilst listening to music. When the music stops, each must quickly find a chair and sit in it. One child is out of luck and is out of the game. Then a chair is removed and the nine remaining children walk around the eight remaining chairs, waiting for the music to stop again.
Economics is a bit like musical chairs. In a recession, the economy takes a hit and there are some casualties. Some players fail to get a chair in time and are out of the game. The game then goes on without them. The economy eventually recovers.
But a depression is a different game entirely. Since 2007, the world has been in an unacknowledged depression. A depression is like a game of musical chairs in which ten children are walking around, but suddenly nine of the chairs are taken away. This means that nine of the children will soon be out of the game. But it also means that all ten understand that the odds of them remaining in the game are quite slim and that desperate times call for desperate measures. It’s time to toss out the rule book and do whatever you have to, to get the one remaining chair.
Of course, the pundits officially deny that we have even been in a depression. They regularly describe the world as “in recovery from the 2008–2010 recession,” but the “shovel-ready jobs” that are “on the way” never quite materialize. The “green shoots” never seem to blossom. So, what’s going on here?
Depressions do not occur all at once. It takes time for them to bottom and, if an economy is propped up through economic heroin (debt), the Big Crash can be a long time in coming.
In that regard, this one is one for the record books. As Doug Casey is fond of saying, a depression is like a hurricane. First there are the initial crashes, then a calm as the eye of the hurricane passes over, then, we enter the trailing edge of the other side of the hurricane. This is the time when things really get rough—when even the politicians will start using the dreaded “D” word. We have entered that final stage, as the economic symptoms demonstrate, and this is the time when the game of musical chairs will evolve into something quite a bit nastier.
In normal economic times, even including recession periods, we observe financial institutions maintaining their staunchly conservative image. For the most part, they deliver as promised. But, as we move into the trailing edge of the second half of the hurricane, we notice more and more that the bankers are rewriting the rule book in order to take possession of the wealth that they previously held in trust for their depositors.
And they don’t do this in isolation. They do it with the aid of the governments of the day. New laws are written in advance of the crisis period to assure that the banks can plunder the deposits with impunity. Since 2010, such laws have been passed in the EU, the US, Canada and other jurisdictions.
Trial balloons have been sent up to ascertain to what degree they will get away with their freezes and confiscations. Greece has been an excellent trial balloon for the freezes and Cyprus has done the same for the confiscations. The world is now as ready as it’s going to be for the game to be played on an international level.
So what will it look like, this game of musical chairs on steroids? Well, first we’ll see the sudden crashes of markets and/or defaults on debts. Shortly thereafter, one Monday morning (or more likely one Tuesday after a long weekend) the financial institutions will fail to open their doors. The media will announce a “temporary state of emergency” during which the governments and banks must resolve some difficulties in order to “assure a continued sound economy.” Until that time, the banks will either remain shut, or will process only small transactions. (This latter announcement is a nice way of saying that the depositors will be on an allowance from the bank until further notice.)
Just as Greeks may now withdraw €420 per week, much of the rest of the world will operate under a similar allowance. What about a business that would need to pay that amount for even one salary? What of a restaurant that would pay that amount for even a small food delivery? That remains to be seen—but business will not be robust.
Of one thing we can be sure. The banks will part with no more than they absolutely have to in order to avoid riots. Their wish will be to confiscate as much as possible themselves, and the new laws allow them to do just that.
And that’s when we’ll discover that nine chairs have disappeared.
Remember, what we’re looking at is the end-game. The banks will no longer maintain the ruse of client concern beyond this point. Each player grabs as much as he is able, because banking as we know it will come to an end.
To be sure, a new banking system will rise from the ashes in a few years, but for now, the wealth that’s on the table will be swept up by those who have the law on their side.
Many of the most august names in banking may well disappear over the next few years. Some institutions folded in 2008, but re-opened under new names (minus the debt that sank them in the first place). Others, like Bear Stearns and Lehman Brothers, are gone for good. They will be joined by a host of other stalwarts of the industry. Merrill Lynch, AIG, Royal Bank of Scotland, Fortis, Fannie Mae and Freddie Mac all teetered on the edge of collapse in 2008. These and many more stand to go off the cliff in the coming crisis.
And they will not go with dignity. They will go out with a last-minute grab of as much of the deposits as they can manage. (Those who have taken part in a bank liquidation will know that what little the departing bankers leave behind on the table, the liquidators gobble up in fees. Depositors, at best, get the scraps.)
Well. Pretty grim. If history repeats, as it generally does, more than 95% of depositors will lose most or all of their savings. But there will be those who are only impacted in a minor way—those who decided to get their wealth (no matter how large or small) out of the banks before the crash.
How so? First, and most essential, remove all your wealth (except for a maximum of three months’ operating capital) from the bank. Second, move it to a jurisdiction that’s at a lesser risk than the jurisdictions stated above. (Pick the healthiest one you can find, with the lowest taxation rate and a reputation for stable government over decades.) Third, since banks in other jurisdictions may also be at risk, place your wealth in those forms of ownership that are least likely to be under attack from your home government (precious metals and real estate). Overseas real estate is the safest bet, as any attempt by a foreign government to confiscate it amounts to an act of war. However, real estate is not the most liquid means of holding wealth, so quite a bit must be held in precious metals—again in the overseas jurisdiction where it’s harder to confiscate.
Should you need a sudden cash infusion at home, precious metals are always easy to sell quickly and the proceeds are easily repatriated (countries in economic trouble never complain about money coming in, only money going out.)
Finally, if possible, create an overseas location for yourself, either where your wealth is or another location—one that’s likely to be peaceful to live in, when crisis reaches your home jurisdiction.
In this game, the odds of being the lucky one who gets the last chair are very slim. The alternative requires more preparation, but is, by far, the safer choice.
- America's Dangerous Game Of Intrigue Inside International Organizations
Submitted by Wayne Madsen via Strategic-Culture.org,
From the International Olympic Committee (IOC) and the Fédération Internationale de Football Association (FIFA) to the Southern Common Market (Mercosur) and the Association of Southeast Asian Nations (ASEAN), Washington has been playing a dangerous game of intrigue and deception with regard to steering these organizations in a pro-American direction. The Obama administration has decided that the halls, offices, and conference rooms of international organizations are acceptable battlefields to wage propaganda and sanctions wars.
The first American target of note was the international football association, FIFA. Not content with trying to sully the reputation of the 2014 Sochi Winter Olympics with issues of gay rights and doping of athletes, the US disinformation boiler rooms began a full-scale attack on FIFA. The major reason is Russia’s hosting of the 2018 FIFA World Cup. The US Justice Department, in a major move toward the internationalization of domestic US law, began unsealing indictment after indictment of FIFA officials for financial crimes. The actual target of these indictments was Russia.
The United States, continuing its economic and political pressure on Venezuela, decided to pressure its three right-wing allies in Latin America – Brazil, Argentina, and Paraguay – to deny the chair of the Mercosur customs union to Venezuela. After Uruguay, whose term was expiring, the next country in alphabetical order to assume the chair of the Latin American customs union was to be Venezuela. However, two countries where the Central Intelligence Agency arranged for constitutional coups to oust progressive presidents – Brazil and Paraguay – joined Argentina, ruled by a right-wing president narrowly elected in a dubious electoral process, in denying the chair to Venezuela.
Venezuelan Foreign Minister Delcy Rodríguez said that what Argentina, Brazil, and Paraguay were doing to Venezuela was the restoration of the CIA’s Operation Condor against Venezuela. Condor was a 1970s operation concocted by Henry Kissinger, the CIA, and fascist governments in Argentina, Chile, Bolivia, Brazil, Paraguay, and Uruguay to target leftists throughout the Condor participants with assassination and torture. In a display of ultimate hubris, Argentina, Brazil, and Paraguay refused to recognize Venezuela as the chair of Mercosur, citing Venezuela’s economic, political and social crises, all of which were hatched by the CIA and its surrogates inside Venezuela.
If Washington wanted to split Mercosur, it got its wish. Uruguay responded to the actions of Argentina, Brazil, and Paraguay by stating, “there are no legal grounds to prevent the handover of the pro tempore presidency to Venezuela”. Bolivian president Evo Morales tweeted that the Washington-inspired diplomatic assault on Venezuela was “Another attack on the economic integration by instruments of the capitalist system. We salute the Venezuelan pro tempore presidency of Mercosur.”
The operation to oust progressive president Dilma Rousseff as president of Brazil and replace her with the proto-fascist Michel Temer was designed to prevent Rousseff from opening the 2016 Summer Olympics in Rio de Janeiro. Neither the Obama administration nor the CIA wanted to see South America’s first Olympics opened by a progressive leftist who had once been tortured by CIA-trained interrogators.
The CIA’s nightmare scenario was a 2016 Olympics where Rousseff would have been joined in the VIP section of the Olympics stadium in Rio by Latin America’s other progressive leaders: Ecuador’s Rafael Correa, Bolivia’s Morales, Uruguay’s Tabare Vazquez, Venezuela’s Nicolas Maduro, Nicaragua’s Daniel Ortega, and Chile’s Michelle Bachelet. With Temer opening the Olympics, Rousseff and many of her political allies in Latin America will not be present in Rio. The United States had no problem ensuring the Rio Olympics became a total disaster just to guarantee that progressive Latin American leaders were denied a platform to show the world that Latin America was no longer under the colonialist boot heel of Washington. It was the same mindset that Washington had in mind for Sochi. The United States was more than willing to ensure disruption at the 2014 Winter Olympics through quiet support, much of it through George Soros-financed organizations, for gay rights and other pressure groups to damage the reputation of the Sochi games.
Not content with disrupting the Rio Olympics by ousting Rousseff as president of Brazil, Washington doubled down by using its agents of influence to resurrect doping accusations against the Russian Summer Olympics team. Washington’s goal was to see Russia suspended from the Rio games.
Resisting pressure from Washington, IOC president Thomas Bach wisely decided to avoid a blanket ban of Russian athletes. Bach called such a unilateral ban on Russia participating in the Rio games as a “nuclear option”. He also said that such a “nuclear option” would have resulted in “collateral damage” among innocent athletes. Bach’s use of two geopolitical military terms was no mistake and it bore the mark of someone responding to familiar American “shock and awe” pressure. The United States used its compliant stooges, Germany and Canada, as well as the dubious World Anti-Doping Agency, run by a Scottish lawyer, to call for a total ban on Russian athletes in Rio.
Washington has also used its influence in ASEAN to ensure the organization became part of the US alliance against China in East Asia. Working behind the scenes within ASEAN, Washington attempted to get the organization, which does not include the United States among its members, to issue a statement backing the decision by the Permanent Court of Arbitration in The Hague rejecting China’s maritime claims to waters and islands in the South China Sea claimed by the Philippines. Cambodia blocked Washington’s maneuver and prevented an ASEAN statement in support of the Philippines against China.
In 2012 and 2016, ASEAN failed to issue a joint statement following a foreign ministers’ summit. This has happened only twice in the 49-year history of the organization. In both cases, it was Cambodia that stood in the way of an ASEAN statement, initiated by American agents within the ASEAN Secretariat in Indonesia, in opposition to China’s maritime claims in the South China Sea.
Across the globe, the United States has sought to expand its influence in international organizations. The United States, using Germany and a few right-wing countries in Eastern Europe as surrogates, has ensured the European Union does not weaken economic sanctions against Russia. The Arab League has become a tool of the United States in applying pressure on Syria, thanks mostly to jihadist-supporting regimes in Saudi Arabia, Qatar, Bahrain, the United Arab Emirates, and Kuwait. The African Union has become nothing more than a pathetic cheerleader for the US Africa Command (AFRICOM), which only seeks to undermine the sovereignty of African nations and the rights of ethnic and religious minorities.
Through its neo-colonialist local partners, Australia and New Zealand, Washington ensures the Pacific Islands Forum remains nothing more than a powerless talking shop. To ensure that the forum never touches the issue of the colonial status of American Samoa, Guam, and the Northern Marianas Islands, Washington has permitted all three colonial territories to join the Pacific Islands Forum as observer states to advance America’s agenda. American nuclear weapons in the Pacific Ocean region are never discussed by the forum nor is the semi-colonial status of three full members of the forum that remain beholden to the dictates of Washington: Micronesia, Marshall Islands, and Palau.
There is a bull in the china shop of international diplomacy and it wears the ugly and discredited attire of Uncle Sam.
- "Coincidence?"
Blame Trump…?
Is it just us, or are cartoonists the only ones left in the mainstream media capable of even questioning the adminstration's newspeak?
- The Indexing End Game: The Wilshire 5000 Only Has 3,607 Stocks
Submitted by Daniel Drew via Dark-Bid.com,
Numbers and false advertising have a long history: 4.9% unemployment, 2.5% GDP growth, 72 virgins. Now we can add the Wilshire 5000 to the list.
What started with good intentions ended with embarrassment as American economic dynamism collapsed in a cascade of falling profit margins, financial engineering, labor devaluation, and lopsided "free trade" agreements. In 1974, Wilshire Associates created the Wilshire 5000, an index of 5,000 stocks that represented nearly the entire stock market. As new companies went public, the index expanded over the years, reaching a peak of 7,562 on July 31, 1998. Since then, the number of companies has been cut in half to 3,607 as of March 31, 2016. Wilshire notes, "The last time the Wilshire 5000 actually contained 5,000 or more companies was December 29, 2005."
The Wilshire 5000 is now 5000 in name only. Ben Carlson of the Common Sense blog calls it the "shrinkage effect" and blames it on the lackluster IPO market, which is a shadow of its former self. He notes, "From 1980 to 2000 there was an average of more than 300 companies every year that went public. Since then that number has dropped to an average of around 150 a year." It's yet further evidence of what I pointed out last year: The Stock Market Is Disappearing In One Giant Leveraged Buyout. The relentless pace of share buybacks and new highs in the S&P 500 point to nothing less than a slow-motion buyout of the entire market, which will widen the gap between the uber-rich and everyone else.
Index investing was supposed to be the last hope of the small investor. Even Warren Buffett, the Baghdad Bob of capitalism, pitches index funds to the average investor, specifically the S&P 500. The premise is that a diversified portfolio will go up over time, and so far, it has worked for anyone who has stayed fully invested. However, there is one simple problem:
What happens when we run out of stocks to index?
Today, it's the Wilshire 5000 that runs out of stocks. In 10 years, the S&P 500 investment committee will be grasping for shares, urging Larry Page and Mark Zuckerberg to issue D shares and F shares of Google and Facebook just to maintain the facade of diversification in an increasingly undiversified world.
- Oil Says the S&P 500 is Heading to 2,050
The markets are beyond overbought and overstretched.
The S&P 500 has been trading within a 1% range for three weeks. This range finally broke out to move an incredible 0.22% higher.
Yes. 0.22%… less than half of one percentage point. This is what has got the bulls foaming at the mouth.
Meanwhile, Oil, which lead the rally from the February lows… has broken down completely.
Stocks are on borrowed time. The S&P 500 should retest 2,100 if not 2,050 in the near future.
On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.
In it, we outline the coming crash will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.
We are giving away just 1,000 copies of this report for FREE to the public.
To pick up yours, swing by:
https://www.phoenixcapitalmarketing.com/stockmarketcrash.html
Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
- "Sell Everything"… But Why: What Has The Smartest Investors So Spooked?
Submitted by Nick Colas of Convergex
Many of the smartest investors out there hate stocks. Since May, we’ve heard negative equity calls from Stan Druckenmiller, George Soros, Carl Icahn, Jeff Gundlach and Bill Gross. Wall Street lore says “Never argue about markets with a guy who is much richer than you”. So we’ll take the discussion in a different direction: what do they know?
Successful investors are always more plugged in than the market as a whole – hence their success. And while we can only guess at the lynchpins of their negative take on stocks, we do have some idea of how significant they must be. For example, in 2016 the S&P 500 is up 5.9% on a price basis after 1) the Brexit “Leave” vote, 2) dramatically disappointing Q1 and Q2 U.S. GDP, 3) a correction of 20% in oil prices, 4) a Fed that has incorrectly calibrated its public stance on monetary policy, 5) Donald Trump as the Republican candidate for president, and 6) the U.S. 10 Year Treasury at near record low yields.
None of that has been enough to spook U.S. equity markets. So whatever the big boys think they know, it must be really bad. But what is it, and why is it so hidden from view?
* * *
“Someone is getting this information before you.” If you’ve ever worked at a hedge fund, you know this is the worst thing you can hear. It means you are behind the curve, providing yesterday’s news into an investment process meant to predict the future. “Titanic sinks!” or “man lands on the moon!” are the more playful retorts you’ll get from co-workers. But it all means the same thing: up your game, or get a white box from the mail room.
So when a cluster of high-profile hedge fund and long-biased managers go out of their way to give dire warnings about the U.S. equity market with stocks sitting at or near all-time highs, any sensible investor needs to pay attention. These are people with access to information that most market participants could only dream of having. Former heads of state and central bankers, private intelligence operatives, senior government officials, the best consultants in any industry… It is like having an all access pass to anything, anywhere, any time.
Here’s a partial list of bold faced names that have panned stocks and other financial assets in recent weeks:- Stan Druckenmiller (May 4th at the Ira Sohn Conference): “Get out of the stock market.”
- George Soros (June 9th, as reported in the Wall Street Journal): “The billionaire hedge fund founder and philanthropist recently directed a series of big, bearish investments, according to people close to the matter.”
- Carl Icahn (June 9th, on CNBC): “I don’t think you can have (near) zero interest rates for much longer without having these bubbles explode on you” while also saying it’s difficult to assess when exactly that might occur.
- Jeff Gundlach (last Friday, in an interview with Reuters): “Sell everything. Nothing here looks good.”
- Bill Gross (in his monthly investment letter, released last week): “I don’t like bonds. I don’t like most stocks. I don’t like private equity.”
Fun fact: a group of bears is called a “sloth” or a “sleuth”. We can safely ignore the first reference; none of these investors made their considerable fortunes through laziness. That leaves us with “Sleuth” – as in, what have they discovered?
Whatever it is, it has to be something weightier than the headlines we’ve faced so far in 2016. The S&P 500 is, after all, still up 5.9% on the year. And none of these headlines have tanked U.S. equities:
- Donald Trump wins Republican nomination for President of the United States against a field of well-funded and well established competition
- U.S. GDP growth fails to deliver on 2% growth through first half; runs 1.0% average instead
- After a good run earlier in the year, crude oil prices experience correction and break $40/barrel
- One gold ETF draws the most fresh money of any exchange listed product YTD; yellow metal at +2 year highs
- Global economic growth so sluggish that U.S. 10-Year Treasury yields reach 1.5%, far worse than even the depths of the Financial Crisis
- Britain votes to leave the European Union
- $13 trillion of global sovereign debt sports a negative yield, so great is the demand for “Safe haven” assets around the world
- Federal Reserve guidance on future interest rate policy widely ignored. The U.S. central bank says 2 bumps to Fed Funds this year (25 bps apiece), but Fed Funds futures handicap less than one.
There’s no getting around it: that’s a lot of unexpected news. The connection between them and higher stocks has exactly one point: bad news drives interest rates lower, and as long as the S&P 500 earns +$115/share those lower rates support ever loftier valuations.
A bearish call, such as the ones our “Sleuth” has made, must therefore convincingly pull the rug out from the “Lower rates = higher stocks” paradigm. Don’t tell me that these big-money investors are just making a valuation call – they all know better than that. Try walking into any of their offices and saying “U.S. stocks trade at 18x earnings… Time to short em…” Your feet would barely touch the floor as security escorted you and your white mail room box out of the building.
No. It must be something larger. But what?
- CNN Host Slams America's Greatest Olympian Ever For Not Being Black, Muslim Woman
Michael Phelps may be the greatest Olympian the world has ever known but for CNN host W. Kamau Bell, he is just a "tall, successful, rich white guy" who clearly didn’t "need the honor" of being chosen by his athlete peers as America's flag-bearer. Instead, Bell exclaims, Ibtihaj Muhammad, a woman, an African-American and a Muslim to boot, should have been chosen because "right now America has enough tall, successful, rich white guys hogging the spotlight trying to make America great."
After Phelps was chosen by his fellow Olympians, the U.S. Olympic Team tweeted proudly….
.@MichaelPhelps is HONORED to be #TeamUSA's flag bearer in the #Rio2016 Opening Ceremony ??????
Just 24 hours away! ?https://t.co/afA85LUPgf
— U.S. Olympic Team (@TeamUSA) August 5, 2016
But, as BizPacreview.com reports, liberals wanted U.S. swimmer Michael Phelps to give up the honor of carrying the American flag and leading his country’s athletes at the opening ceremony for the Rio Olympic games Friday night.
He’s the wrong color and the wrong sex.
W. Kamau Bell, host of CNN's "United Shades of America," described the swimming sensation as a “tall, successful, rich white guy” who clearly didn’t "need the honor."
“With 22 Olympic medals, you are already the most decorated athlete in Olympic history,” he said.
But American fencer Ibtihaj Muhammad is a different story…
…a woman, an African-American and a Muslim to boot.
“Muhammad carrying the flag would be much bigger than your one moment,” Bell writes. “It would be a symbol for our country in this moment when we are mostly known for one of the most contentious, controversial, scandal-ridden, hateful, xenophobic, jingoistic, and just generally unlikable presidential elections in recent memory. This is at a time when we could use some more symbols of unity and togetherness.”
Bell referred to Muhammad as “a one-stop inclusion shop due to her race, sex and religion. Phelps, on the other hand was something else entirely.
“No offense, but right now America has enough tall, successful, rich white guys hogging the spotlight trying to make America great,” he said, in an obvious reference to Donald Trump.
"No offense"… but sadly it appears the supposedly apolitical Olympic Games has been hijacked by the liberal agenda – under the guise of fairness, so you can't argue with that, right? – to further the divide in today's identity politics.
Perhaps when Ibtihaj has won dozens of Olympic medals over a 20 year career, she will also get the opportunity… or perhaps a black, muslim swimmer will emerge who is gender-uncertain and slightly disabled to topple the crown of liberal queen?
#WhiteSwimmersLivesMatter
- The Trick To Staying Sane In The Market's New Normal Ponzi Narrative
Just as there’s a scheme to pay old investors with new investors money (aka a Ponzi.) There’s another part of the scheme that rarely gets talked about: i.e.,The narrative that fuels the scheme to begin with.
Much like the original structure which involves money, this too needs an ever-growing amount of gullible, willing participants. However, the currency here is narrative.
And just like any Ponzi scheme once you lose the narrative – you’ve lost everything. One can not survive without the other. Yet, it is the narrative more often than not that is needed to drive the scheme ever higher. Without it, the scheme implodes via its own weight. The narrative regardless of how outlandish, bizarre, or full of nothing but outright lies must be maintained and vociferously defended by those who are already caught in the scheme.
In my view the reason why many are finding the greatest confusion, as well as complete consternation is this: Too many are forgetting the “investors” in this scheme are governments (or proxy) with unlimited funding resources, as well as: they also control the narrative. i.e., any data point they wish to convey as what “is” good or bad. I would imagine if Charles Ponzi were alive today he’d argue “And you sent me to jail for?” But I digress.
Why the scheme of today is far more troubling than those of any bygone era is as I iterated: the access to unlimited funds.
As has been stated ad infinitum – central banks have the ability to print money ex nihlo. And what people forget is that ability retards the process for the scheme to collapse under its own weight. Remember: a Ponzi scheme works until you begin running out of suckers. And it’s in that math of exponentiation where once you see “a crack” the crumbling comes with near immediacy. There are only so many people, with enough money to swindle.
However, if one has access to unlimited fund? “Cracks” can be repaired, hence the scheme can continue. The game is the same. The only difference with this one is the physical reality of needing more “bodies” with wallets is no longer a requirement. i.e., One central bank with the gumption to print equals how many investors wallets of yesterday? 10? 100? 10,000? 1,000,000,000,000? I hope you beginning to see my point.
As long as the central bankers of the world are holding the print button down with both hands and feet – the scheme is going to last a lot longer than anyone ever dreamed possible. But, as I said, the “money” is only half of the equation. This is where the narrative must also match if not supersede. And it is here where those “cracks” are beginning to widen at a dramatic pace, and “money” alone can’t abate the damage. In fact more “money” seems to be exacerbating the problem.
I have been inundated by notes from friends and family this past week as the “markets” once again hit never before seen in human history heights. However, this time was different from some of those in the past. I could discern two very distinct recollections as they tried to square a few circles. First: How can GDP be in the toilet at the same time they’re touting a “wonderful” employment report? And second: If the “markets” are a representation of the economy – then why does the economy stink? But it wasn’t only them…
More than likely if you are reading this you are probably one of the few that have concluded via your own observations that this economy is not in any way, shape, manner, or form what it’s being represented or heralded via the main stream media or financial press and are looking for other objective viewpoints. Or, you don’t truly know which side to take for everything seems contradicting. Regardless of which camp you fall into, I commend you for looking as to form your own conclusion. However, with that said, I would venture to bet dollars-to-doughnuts you’ve also come across a phenom that’s growing absolutely louder by the day: Utter contempt that it has yet to fall apart.
As usual I have been perusing many differing news sites, as well as financial blogs and more. What I’ve been noticing more, and more as of late is the utter despondence by some, and the absolute outrage by others that the markets are still being held captive by central bankers. i.e., “Why won’t this market go down?!”
Well, it’s quite easy really, and it’s these very same people who understand this point deep down yet, are the one’s losing their minds the fastest: e.g., It’s not a market.
For years now it’s been self-evident: market rules no longer apply. Technical analysis – useless. Fundamental analysis – useless. The only thing that now matters is whether or not a stock, bond, or ETF is favored by a central bank. Period. Yet, far too many veteran traders or seasoned business people are still viewing many aspects of these markets through a prism of 10 years ago. Those days are gone, long gone. Yet, people are acting (or hoping) that there is still some sense of normalcy still residing within. I’m sorry – there isn’t.
The issue here is we may indeed be in what some have described as a final turning, much like that described in the brilliant work of Strauss-Howe in their seminal work “The Fourth Turning.” Whether or not one prescribes to this theory is for one’s own counsel. However, if there is one factor which helps put weight into where we are one can’t leave out one of the other most prominent tell-tale signs. To paraphrase Robert Prechter “Governments are the ultimate herd mentality.” And this latest “bull-run” shows just how “more money than sense” this latest bull#### run has become.
The difference today is, where as in a traditional Ponzi like situation the narrative would break (i.e., people would begin openly complaining about not getting paid) where it would all but disintegrate overnight. That’s not going to happen with near unlimited funds. Even if the ruse is the same.
The key to watch for (in my opinion) is when the narrative (i.e., everyone’s getting paid) is believed less and less, coupled with: the longer it goes on – the less it’s believed. I feel we are in these stages currently. Which via my thinking is an end-of-game stage.
However, how long it can go on for is an open question. We’re now closing in on a decade, can it go longer? Again, who knows, but the issue is: if it does – how do you want to play knowing what you know?
The issue today is not to “blame” what may, or may not, be happening to your psyche as it pertains to the markets. For there aren’t any. Only “markets” now exist. And they are in a complete bizzaro world of their own. The “rabbit hole” central bankers of today have created make the world of Alice look down right normal as compared to the modern Keynesian markets of today.
The key to keeping one’s sanity (as well as account balance) is to stop waging a rational war with the irrational. Or, said differently: never try to teach a pig to sing. It will do nothing but frustrate you and annoys the hell out of the pig. Too many today are still trying to make this pig sing a tune of reality. It won’t – and it can’t.
During this period what any prudent individual or business concern should be focusing on is how can they take advantage of the current craziness, and how can they be in the most opportune position when that crazy does indeed come forth. For it is my contention – opportunities of generational proportions will make themselves available to the prepared. Here are a few examples…
If you are some form of a day trader in stocks you must know more about how to close and get paid on your position just as much, if not more so, than strategies for putting one on in the first place. If you own a business of any size what is just as important to understanding a competitor’s product strength is their strength or weakness should any disruptions within the “markets” occur. i.e., will they still be able to fund? Who is their funding source? Is their main supplier at risk if a currency move takes place in the Yen, Yuan, Dollar, etc., etc, overnight? And what can you do if so? Does it effect you?
During this central bank influenced “house of crazy” have you taken advantage of these low rates as best you could? Or, have you left that up to your competitor?
If you’re an investor – are you concentrating on gaining ever the more risk as these “markets” go higher? Or, are you pulling more and more off the table with a concern for the where’s and how’s to make sure there is a return “of” your capital as opposed to a return “on?”
If you’re in a business or even employed by one – have you taken note as to if your company or competitors are the current “buy, buy, buy” of some central bank portfolio? Do you even know? If you think it’s all about “superior product” only today. I’m sorry – you’re not paying enough attention. A superior product means little if the competition’s bonds are being bought hand over fist – and yours are left vying for scraps. Of course there are myriads more however, this is the way one needs to view today’s current environment.
As was stated many years ago but is now turned up to 11: The markets can stay irrational much longer than one can remain solvent. Add to that “irrational central bankers?” 11 goes to 11².
Time is of the essence to ensure one is planning for the correct probabilities, along with watching ever the closer for more tell-tale signs that things are getting closer to a conclusion rather than a continuation. And narrative is the thing to watch vigorously in my opinion. The money is no longer affording the continuation of near religious faith in the omnipotence of central bankers. For the higher the market goes – the louder the questioning is becoming.
The key today is to not think as Cypher (played by Joe Pantoliano) did in “The Matrix” (1999) when he longed for the option to change his decision and take the blue pill as opposed to the red. No, that’s not an option no matter how much one would like. You can’t un-know what you now know to be true. No, the trick to keeping one’s sanity, as well as wallet in tact is know what games are rigged and which are not. Then decide as in another movie tag line made famous by a computer named “Joshua” (depicted in the movie War Games 1983) when it stated…
“A STRANGE GAME. THE ONLY WINNING MOVE IS NOT TO PLAY.”
If you watch the ‘markets” closely what you’ll find is that line is picking up ever the more steam the higher these “markets” go.
That’s how you know the narrative is coming unglued. Just when it has a catastrophic failure event? That’s anyone’s guess. And it’s all a guess at this point.
- The S&P Is Now Set To Report Its Second Consecutive Annual Earnings Drop Since The Financial Crisis
With 86% of the companies in the S&P 500 reporting earnings to date for Q2 2016, Q2 earnings season is almost over. 69% of companies have reported earnings above the mean estimate and 54% have reported sales above the mean estimate. Still, despite the beat (on the back of what may be Reg-FD busting leakage of company earnings to sellside analysts just so companies can beat EPS in the last moment as described on Friday), earnings growth, or lack thereof, for Q2 2016 is expected to be -3.5%. This will make the first time the index has recorded five consecutive quarters of year-over-year declines in earnings since the financial crisis.
As the chart below shows, the forward PE of the S&P500 has now been flat for two years, even as the actual index has surged to record highs on the back of even greater multiple expansion, as both the economy and profit growth has slowed down: a Finance 101 paradox.
How lofty is that? Moments ago Goldman said that “The median S&P 500 stock trades at a forward P/E of 18.2x, ranking in the 98th percentile since 1976.” It’s also the reason why Goldman unveiled a tactical sell on stocks one week ago.
It gets worse. Whereas one week ago, Q3 consenus earnings for the first time dipped negative, as of Friday sellside analysts now expect third quarter earnings to decline a substantial -1.7% Y/Y as every sector has seen its forecast earnings drop substantially.
Which means that earnings growth is now not expected to return until Q4 2016, and also means that if consensus is accurate, S&P500 EPS are on pace to decline for a record 6 consecutive quarters.
A few months ago, when Q3 consensus EPS was still well in the green, we predicted that Q3 would ultimately be revised to negative. It was. Now we predict that over the next 2-3 months Q4, EPS which is currently expected to grow 5.7% will likewise be dragged into negative territory.
Finally, as a result of the recent cuts to Q3 earnings consensus, and the slowdown to Q4 EPS growth, one can forget about 2016 full year earnings growth. According to Factset, year-over-year earnings are now set to decline -0.3% for the full year, after starting off the year at +6%. This would mark the second time the S&P has reported 2 consecutive years of earnings declines since 2008 and 2009.
More from FactSet:
For the first quarter of 2016, the actual, year-over-year earnings decline reported by the S&P 500 was -6.7%. For the second quarter of 2016, the blended (combines actual results for companies that have reported and estimated results for companies yet to report), year-over-year earnings decline for the S&P 500 stands at -3.5%. For the third quarter of 2016, the estimated earnings decline stands at -1.7%. For the fourth quarter of 2016, the estimated earnings growth rate is 5.7%.
Given that the index is expected to report earnings declines for the first three quarters of 2016, what are analyst expectations for year-over-year earnings for all of 2016? Do analysts believe earnings will decline for all of 2016 also?
The answer is yes. As of today, the estimated earnings decline for the S&P 500 for CY 2016 stands at -0.3%. However, expectations for earnings growth for CY 2016 have been falling not just over the past few weeks, but over the past several months. On December 31, the estimated earnings growth rate for CY 2016 was 5.9%. By March 31, the estimated earnings growth rate had declined to 1.3%. By June 30, the estimated earnings growth rate had decreased to 0.1%. Today, it stands at -0.3%.
If the index reports a year-over-year decline in earnings for CY 2016, it will mark the first time the index has reported two consecutive years of earnings declines since CY 2008 (-25.4%) and CY 2009 (-8.0%).
At the sector level, four sectors are projected to report a year-over-year decline in earnings for CY 2016, led by the Energy sector (-72.0%). The Energy sector is expected to the largest contributor to the year-over-year earnings decline for the index for the full year. If the Energy sector is excluded, the estimated earnings growth rate for the S&P 500 for CY 2016 would improve to 2.8%.
Translation: expect even higher record highs in the S&P 500 this coming week.
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