The smell of economic NAPALM is in the air as the central bank printing presses
have allowed mispricing, malinvestments and market imbalances to mushroom to
EXPLOSIVE levels. Now the money printing is set to slow and some of the insolvent
can be expected to fall to their doom as the tide of money recedes.
This has set the stage for a BLACK swan of unknown identity to set off the
conflagration. The Black swans are too numerous to mention but we are going
to identify a few of them in this edition of fingers of instability.
ECONOMIC Optimism abounds as dead cat bounces in Keynesian HEADLINE economic
illusions provide those who live within the MAIN STREAM MEDIA matrix of misinformation
HOPE. This is the vast majority of the public and investors in general. Of
course nothing could be further from the truth, they really live in a world
of willful blindness.
IN REALITY these people are the frog in the slowly boiling water of the unfolding
depression which began in 2008. The depression masked by debt masquerading
as economic growth first and wealth second. The bonds and money which have
been printed out of thin air are just the next step in the unfolding SYSTEMIC
insolvency which is MUSHROOMING on a daily basis.
Actually no wealth has been created (but GARGANTUAN future liabilities have
been), it is just the opposite. It is the consumption of wealth and misallocation
of capital to consumption rather than investment and creating a BOOM from credit
expansion on grandest scale in history. The BUST will be equally SPECTACULAR!
Just this week it was announced that Japan's government DEBT has surpassed
1 Quadrillion yen ($10 trillion US dollars and 200%+ of GDP), with most of
the new debt/money PRINTED out of THIN AIR.
As we near the 1st birthday of QE to infinity the approximate total MONEY
printed out of THIN AIR since its inception in September 2012 is $1 million
million dollars ($1 trillion or $20,000 million per state). You would think
an economic recovery should be in FULL swing.
The bottom line is that the Federal Reserve has bought approximately 110%
of all treasury issuance since Jan 1. In fact, subtract Fed balance sheet expansion
from GDP growth and a DEEP recession is clearly VISIBLE.
The money didn't go into the economy; it went into the banks (FOREIGN and
DOMESTIC) to relieve them of toxic mortgage securities and into treasuries
to fund a MORALLY AND FISCALLY insolvent central GOVERNMENT IN Washington DC.
The public and private sector have virtually left the arena for RISK FREE SECURITIES.
Think about that... How far will GOVERNMENT bonds have to fall (yields rise)
before investors will be attracted to them again?
All the treasury money went into consumption, and not a cent went into investing
in the future. Most of the debt is to buy overpriced malinvestments, government
debt and toxic bank assets which do not produce more that they cost and purely
consumption by Something for Nothing societies aka Developed World Welfare
States.
In addition to GOVERNMENT debt compounding at 6-8% over the last five years
UNFUNDED LIABILITIES are compounding at almost double that rate:
These are socialized CENTRALLY PLANNED economies in all but name only, directly
(state owned monopolies) or indirectly (regulated). They control all the means
of production and confiscate most income either thru taxation or theft of purchasing
power of the respective currencies through deficit spending of money printed
out of thin air.
There has been no austerity where government spending is concerned
since the Global financial crisis in 2007. GOVERNMENTS have exploded in
size. Which Governments present as growth, to cut government will cut reported
economic growth. Their growth has been funded by major new BORROWING, taxes
and fees on every part of the societies they control.
Confiscation of incomes is now approaching virtually slavery for those that
produce wealth. Take a look at the meager amounts are left to the citizens
of the developed world's Socialist/welfare states:
TOTAL Taxes range from 59 to 80% depending on where you look. This DOES not
include government fees which are up 10 to 100% or the cost of runaway regulation
discussed in the last edition of TedBits.
Ever wonder why the auto industry is free-fall in Europe? Gasoline in the
United States averages $3.50 a gallon in Germany it is $12 dollars, the difference
is TAXES. This is why business formation and industrial production is at multi
decade lows . In Europe the entrepreneur is extinct and so too is REAL ECONOMIC
growth; in the US the assassination in UNDERWAY!
In no country has spending actually been cut, just the rate of growth in spending.
To fund EXPANDED government spending, promises to CONSTITUENTS (something for
nothing societies, crony capitalists and special interest elites) taxes and
fees have been raised on the private sectors and on the public at large.
There is no reason to create wealth in the developed world anymore as it will
be confiscated for REDISTRIBUTION to special interest supporters. Do you think
that might affect the behavior of producers and entrepreneurs? For supporters
of socialist/progressive BIG government it is NEVER enough to fund their VOTE
BUYING and corruption...
Its only small and medium size businesses that are paying TAXES as they are
unable to INFLUENCE public servants for tax loopholes and regulatory FAVORS
as BIG BUSINESS does with their lobbying.
In the United States the CIVIL war was fought to end slavery. To President
Lincoln, the very idea of one person taking the fruits of another person's
labor IE: "SLAVERY" was VILE, immoral and repugnant and he went to war to end
the practice. It still is in my mind.
Now the SOCIAL WELFARE governments throughout the developed world have implemented
the same practice and call it FAIRNESS. Can you say George Orwell's Animal
Farm? There is no reason to produce wealth in these societies as to do so RESULTS
in confiscation by the something for nothing societies which are cannibals
of the worst sort.
ECONOMIC Growth will never resume until those that produce nothing
or consume more than they produce are stopped from eating those that do!
"The democracy will cease to exist when you take away from those who
are willing to work and give to those who would not." ~ Thomas
Jefferson
REAL Wealth creation has and is now FLEEING to places OUTSIDE the grasp of
the welfare states locusts and will continue to do so. Look at the size of
the underground economies in Europe (courtesy of www.zerohedge.com):
Throughout the social welfare states, as taxes and regulation have RISEN to
confiscatory levels, underground economies have mushroomed to average 22.1%
of the EU economy to escape CONFISCATION and the TAXMAN. It set to rise further.
This is also why wealth creation as represented by manufacturing and intellectual
property have moved to low tax JURISDICTIONS such as IRELAND, SWITZERLAND,
Singapore, Hong Kong, Cayman Islands, and of course the biggest tax haven in
the world: the UNITED STATES, etc.
Many in the main stream media call tax minimization (all done within the letter
of the laws) NEFARIOUS and UNFAIR. Ha Ha. It nothing more nefarious then SELF
PRESERVATION from thinly disguised social welfare state slavery called FAIRNESS!
It is people and businesses FLEEING (looters with government guns) through
whatever doors are available to them!!!
For wealth creators and international businesses it is either move to places
that reward capital and wealth creation or become UNCOMPETITIVE in the global
marketplace; aka OUT OF BUSINESS.
Businesses and entrepreneurs do not work for the government. They work for
themselves, shareholders, employees and customers. The most important being
the customer by providing more goods and services for less money for which
they are REWARDED by earning the customers' business.
Let me tell you something about corporate taxes: corporations don't pay them,
their customers do in higher prices and their employees do in lower wages.
Higher corporate taxes mean less job security and fewer jobs as money moves
from productive activities in the developed world to the emerging world where
they can STAY globally competitive. This is WHY the developed world's ability
to create wealth, jobs and economic growth has been HOLLOWED out over the last
5 decades as they FLEE the centrally planned socialist economies of the west.
( Author's note: In my opinion, this is NOT Doom and GLOOM ,
it is one of the greatest opportunities in HISTORY. Invest properly for
this outcome and Prosper, invest looking in the REARVIEW mirror and your
wealth will be irreparably DAMAGED. Volatility is opportunity for the prepared
investor. As it is priced in and markets ZOOM higher or LOWER to price
in collapsing economies and money printing huge opportunities are created.
Is your portfolio structured to thrive? The greatest transfer of
wealth from those that hold it in paper and financial assets to those that
don't is UNDERWAY. Restoring fiat currencies to sound money and absolute
return alternative investments with the potential to thrive in all market
(up, down and sideways) conditions is what I do. If you have an interest
in learning more and working with Ty: CLICK
HERE
Until the wealth confiscation, and crooked regulations (crony capitalism)
are removed there will be no recovery in REAL terms, all economic growth
is a measure of money printed out of thin air and false phantom growth done
to HIDE what centrally planned socialist economies have DESTROYED in REAL wealth
creation.
FAKE Phantom growth has mushroomed in the developed world. It is an illusion
of business activity and GDP when none has occurred, such as free checking
accounts, and imputed rent from fully paid for housing. Take a look at GDP
when phantom growth is taken out:
Recently it was announced that accrued pension liabilities (Corporate and
Government) which have not been funded will be added to PREVIOUSLY reported
gdp and called PAID wages to create a LARGER false headline GDP number to BOOST/FOOL
the masses that socialist/progressive government policies are DESTROYING.
For example: the state of Illinois has unfunded pension obligations of approximately
$100 billion dollars which is simply nothing in today's GDP reports. Now it
will be counted as fully funded and added to paid wages in the past and into
the future In reality, they will NEVER be paid into or out.
Nationally unfunded state and municipal pensions are underfunded by approximately
$3 trillion, now that will be added into past gdp reports as paid wages. Big
new lines of PHANTOM GDP to FOOL YOU!
This will be repeated for every unfunded obligation whether it is state, municipal,
corporate or federal. It will add TRILLIONS to previous (approximately $3.7
trillion) and future growth reports but NO REAL economic growth is actually
there or wages paid. Government sponsored DECEPTIONS to FOOL you! The New York
Times just reported it is a $560 billion dollar addition of PHANTOM GDP
In Amerika and Europe if you can't get the numbers to work: GOVERNMENTS
JUST LIE to you ABOUT IT!
As over $12 trillion dollars ($12 million million dollars, +$2 million million
scheduled) have ROLLED off the printing presses since 2007-8 financial systems
(banks), federal governments (plunge protection team) and central banks have
morphed into masters of MANIPULATION of prices. Take a look at the stock market
and volume since the REAL top in 2000 courtesy of www.elliotwave.com:
Volume should be confirming price, but it has been steadily declining since
the REAL top in 2000. Actually it is worse than it looks because if you subtract
High Frequency trading (legalized front running which accounts for approximately
2 out of every three trades illustrated) volume is the lowest in 2 decades
and sentiment is at ALL TIME HIGHS and the public has said NO MORE for me!
The biggest cluster of HINDENBERG Omens in history has just been completed
signaling internal divergences typically seen before BIG market pullbacks.
(courtesy www.zerohedge.com)
Notice the cluster just after the taper was announced in June, the market
started to decline and the fed blinked and in a burst of hot air talked and
walked it back. Now taper talk is back, the cluster has repeated and the smart
money is exiting while the dumb money is told: This time is different, BUY
BUY BUY and it never is...
Oppenheimer's Carter Worth's latest "Money in Motion" missive identifies topping
formations in big names and sectors: Consumer staples - Phillip Morris, Coca
Cola, Nestle, SAB miller, Unilever, WAL-MART, McDonald's; TELECOMS - ATT; Manufacturers
- Samsung; Energy - Exxon Mobil; REITS - Simon property group; Chemical and
agriculture - Syngenta and Monsanto; Homebuilders - Sherwin Williams; Pharma
- Sanofi; SAP AG, British American tobacco, BASF, IBM, Accenture, Zurich Insurance
group AG and EBay. That is a chorus of BIG caps spread across many sectors
that have TOPPED or are TOPPING as he puts it. He says he could have put up
three for every stock mentioned. Then he provided a table:
Stocks are working on huge reversals on the charts. RARELY in history have
economic fundamentals deviated from Stock prices as we see today (chart courtesy
of www.streettalklive.com):
This is a result of regulatory and tax uncertainty, and the collapse in CAPEX
as SMART money knows there is NO TOP LINE growth. Next we have an excellent
chart of cash flows into mutual funds and ETF's and the price of the S&P
500 from www.biancoresearch.com:
Let's see, constant outflows since the March 2009 lows and a RISING market.
Can you smell something fishy? Can you say MANIPULATED? Next we have a chart
of the S&P 500 demarked by money printing versus no money printing, also
from Bianco research:
Every time the printing press has STOPPED it was bombs away. The Rally we
are seeing in the stock market is an illusion if you adjust for FED MONEY PRINTING
(www.gluskinscheff.com):
Thus, all the great new highs we see in U.S. stock markets is NOTHING MORE
than stocks repricing to REFLECT the LOSS of PURCHASING POWER of the US dollar
they are denominated in. It certainly is not reflective of an improving economy.
You can do the previous exercise measuring increases in wealth after being
offset by increase in debt (courtesy Gavecal data and www.zerohedge.com):
Once again REAL wealth creation disappears just like the stock gains Growth
in PERSONAL incomes is EQUALLY BLEAK
This is not the face of a recovery or fuel for economic EXPANSION!
Zerohedge just recently published a chart from Diapason commodities and Charles
Hugh Smith overlaying capital goods order with the stock market since 1996
and it would indicate very stretched valuations:
And PE's are near the 2007-2008 highs. Can you say priced to perfection?
Can these stocks rise further? Of course, especially when over $5.1 billion
dollars (5,100 million by BOJ and FED combined) are being printed daily with
MUCH MORE to COME. But a fly has entered the ointment as year over year profit
growth is now ZERO and should begin a decline to new lows following the wolf
wave. Just this week Wal-Mart warned, missed revenues and profit estimates
as did: MACYS, Nordstrom's, and Cisco.
This is a very predicative pattern. I used it in an April 2007 commentary
to predict the 2008 crash, so let me say I predict an economic and stock
market crash to begin unfolding now. Those earnings lows were last
seen heading into November 2008 when the chosen one ascended to power. I am
looking for a similar collapse into November 2014 elections.
That is the face of a wolf wave and it commenced in August 1971 when unsound
money in the reserve currency of the world was unleashed on the trusting citizens
of the developed world. Wolves eat things, in this case economies and earnings.
The Wolf Wave is the face of fiat money creation oscillating out of control.
Either TOO HOT or TOO COLD, unbelievably enough I believe it is too cold if
the financial system is going to avoid implosion in the short term. In the
long run there is NO ESCAPE.
Central banks, public servants and banksters have ENGINEERED many new emerging
bubbles in financial assets. Keep in mind, Mark Carney, the incoming Bank of
England president and ECB Chairman Mario Draghi are warming up the helicopters
in recent PUBLIC statements.
Margin debt aka LEVERAGE is at peaks preceding EVERY major stock market crash
in the last 14 years from www.dshort.com :
As you can see margin debt is a REFLECTION of price in the stock markets,
looking at it another way with an S&P 500 overlay:
Ouch, do you think now is the time to be LONG the MARKET? Can you say BUBBLE
FORMING? As we go to press (August 21, 2013) new ALL TIME highs in LEVERAGE
in the chart above should have been reached. Investors have superhuman confidence
in the Bernanke PUT aka QE INFINITY. Now they are in the sights of the HFT
traders.
When you look at the financial repression existing in today's society all
of us need to subtract the difference between REAL and reported inflation.
The lies just get bigger and bigger to cover up the theft of purchasing power
through money printing. They design their policies around the red line (to
keep interest rates deeply negative to support economic growth, keep Ponzi
economies alive and inflate asset prices which they call GDP) and let the public
deal with the blue line.
This Guarantees NEGATIVE interest rates and financial repression FOR
as FAR as the EYE can SEE. REAL wages and LIVING standards as measured
in purchasing power are in FREEFALL...
All returns on your investments need to be adjusted by the difference between
both lines to see if you are making or losing money after debasement.
This is why the MIDDLE class is DEAD, robbed/destroyed by printing
press and PROGRESSIVE SOCIALIST politics. Someday FINANCIAL
assets (MISPRICED malinvestments all) will decline (leverage fails) to
provide a real return after real inflation and it will be an old fashion
COLLAPSE/CRASH. We are just waiting for people to WAKE UP?
In conclusion: The powers that be in the developed world say an economic recovery
is in place, don't believe it for a moment. Just look under the covers of their
REPORTS and RELEASES and discover the rot is as deep or deeper as political
solutions (designed to benefit the governments, elites and banksters) to practical
problems FAIL.
Just look where growth has been in the last four years, note that GDP, income
and jobs have barely grown, properly adjusted for politically correct lies
they are NEGATIVE aka NO REAL RECOVERY in underlying economies:
In general, as a long time market observer of more than 3 decades I feel confident
in saying the smell of NAPALM is in the air. The question is what will ignite
it? You shall see in the next edition of this commentary!
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The Federal Reserve is clear they want LOW RATES and are managing them to
virtually ZERO. Based on the Shadowstats INFLATION analysis, the 10 year note
yields should be about 12% to give a real yield after inflation. When this
market clears they will be and financial asset markets and the banking systems
will crash with them.
As we go to press the 10 year note is failing and falling out of a bear flag
signaling a move to approximately 3.6% or a doubling of interest rates since
MAY. Global central banks are in the process of losing their grips on the long
end of the bond markets globally.
We now live in a world where conventional monetary policy (regular interest
rates) is FEARED. Rightly so as normalized (market determined) interest rates
spell the death of ASSET BACKED economies, financial systems and financialized
economies which will collapse with higher rates...
Don't miss the finale of the "Fingers of Instability" series where we put
the GLOBAL bomb er bond markets into the crosshairs in the next issue of Tedbits.
Let's call it the mother of all BLACK SWANS...
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Sincerely,
