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- Jan 14, 2020 9:34pm Jan 14, 2020 9:34pm
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Submitted by Peter Garnry, Head of Equity Strategy, Saxo Bank
Equities are getting frothy with short squeeze and momentum accelerating technology stocks higher. This has led to the highest top five concentration in the S&P 500 eclipsing the dot-com bubble in a sign of destabilisation and increased fragility.
We are putting out an early warning to investors as a sharp correction in equities could be imminent. Our overall longer term view is still positive on equities, but sharp moves up are typically followed by rapid declines. In today's equity update we also talk about equity valuations and earnings season.
The first two weeks of the year have seen a tremendous acceleration in technology stocks with the sector by far outperforming all other sectors. As we talk about in today’s Market Call podcast we are witnessing an epic short squeeze in Tesla and other heavily shorted stocks. In higher echelons of the market the FANG+ Index is accelerating at an unprecedented pace showing clear signs of frothy behavior. It mimics the move leading up to the volatility explosion in February 2018.
While we laid out our asset allocation view yesterday as overweight Europe and EM equities, and overweight equities vs bonds, the short-term dynamic could get ugly here when the short squeeze and momentum have exhausted itself.
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In VIX we are observing a increase in net positioning although from a very low level but could signs that bigger players in the futures and option markets are preparing for increase in volatility. On the other, the forward curve in VIX futures is still not sending any distress signals, but these things change fast and the catalyst may be very subtle.
The rapid rise of the large US technology stocks has catapulted the five largest stocks on market value to reach an index weight of 18%, the highest level observed in the S&P 500 in 25 years. Increased concentration risk is a clear sign of fragility increasing and the system is destabilizing underneath the surface. It’s historically a recipe for violent moves so it should definitely be on investors’ radar.
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As we hinted at in our equity update yesterday the equity valuation expansion might be fueled by investors anchoring their long-term interest rate expectations at a continuing lower level increasing the equity risk premium and hence allowing higher multiples on earnings. With the lower anchoring and dual stimulus coming from the monetary and fiscal side we cannot rule out that equity valuation will reach new all-time highs before the party ends.
But the current move seems too aggressive, and the probability of a sudden large drop in equities could happen anytime. Investors should consider reducing equity exposure somewhat here or add some downside protection.
The earnings season kicks into gear today with the first big names (Citigroup, JPMorgan Chase and Wells Fargo) reporting Q4 earnings. Consensus is looking for strong EPS y/y figures for JPMorgan Chase and Citigroup due to base effects from a very weak Q4 2018.
Wells Fargo which is a more pure banking play is expected to show slightly negative y/y EPS growth. All there financials are expected to show negative q/q growth numbers. But overall analysts are looking for decent numbers from financials compared to other industries. In aggregate S&P 500 is expected to deliver its fourth straight negative y/y EPS growth in Q4 for the first time since the financial crisis.
However, the real price action lies in the outlooks which should be improving given the recent macro backdrop and better signs coming out of Asia.
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January 15, 2020
FBI Gets Head-Whacked By Barr As Dem Panic Grows Over Mysterious Sealed Criminal Indictments
By: Sorcha Faal, and as reported to her Western Subscribers
A compelling new Security Council (SC) report circulating in the Kremlin today noting President Putin’s call for the world’s five nuclear-armed states to work together to neutralize the threat of global war, says the first response coming in reply to this urgent request has been issued by nuclear-power nation leader British Prime Minister Boris Johnson with his call for the “Trump Deal” to be agreed upon to bring about peace with Iran—that nuclear-power leader President Donald Trump immediately responded to with his Tweet saying “Prime Minister of the United Kingdom, Boris Johnson, stated, ‘We should replace the Iran deal with the Trump deal.’ I agree!”—but are moves towards global peace shockingly slammed by Democrat Party Leader Nancy Pelosi ordering her socialist forces in the US House to block a resolution condemning Iran for murdering protesters—a shameful blocking of a resolution that would have placed an even brighter light on Iran to force it to return to a peaceful nation status—and whose only conceivable reason for socialist leader Pelosi blocking it would be out of sheer panic—a panic appearing to be justified after it was stunningly revealed yesterday that a US Federal Court is conducting a secretive sealed criminal indictment case relating to former Democrat Party Leader US Congresswoman Debbie Wasserman-Schultz—which brings back to the forefront the highly unusual nearly three dozen sealed criminal indictments that were added to the US Federal Court docket in Washington, D.C. since the start of 2018—none of which have yet to be explained, and weren’t part of the Muller Investigation that ended last March-2019 with no sealed criminal indictments being issued—though hints about what they’re related to have been percolating thorough the American body politic for months now—best exampled by Butler County-Ohio Sheriff Richard Jones warning Trump yesterday of FBI corruption and his stating: “some responsibilities of the FBI need to be reallocated to the U.S. Marshals to balance power”—a warning immediately responded to by US Attorney General William Barr whacking the FBI upside the proverbial head and telling them “there will be no future counter-intel investigations into presidential campaigns without my approval”. [Note: Some words and/or phrases appearing in quotes in this report are English language approximations of Russian words/phrases having no exact counterpart.]
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According to this report, one of the most historic and consequential events being undertaken by President Trump since he took office has been to destroy the seemingly unlimited power of the FBI—that no one can blame him for as this domestic intelligence and so-called federal law enforcement agency has waged an unrelenting war to destroy him—which Trump responded to by turning to the more than 3,000 sheriffs offices across the United States to protect him—most particularly those adhering to the principals outlined in the pamphlet “Constitutional Sheriff: America’s Last Hope”—which affirms that sheriffs in America are indeed the ultimate law authority in their respective jurisdictions—and declares that sheriffs have the absolute power and responsibility to defend their citizens against all enemies, including those from their own Federal Government—all supported by US constitutional law and US Supreme Court rulings upholding the fact that elected by the people sheriffs are the highest law enforcement officers in the land.
Viciously attacking President Trump for supporting these Constitutional Sheriffs, this report continues, is leftist Professor Robert L. Tsai from the American University—who wrote:
When President Donald Trump pardoned Sheriff Joe Arpaio, calling him a “patriot,” he didn’t just absolve him from the consequences of defying a federal judge. He didn’t merely excuse Arpaio’s racial profiling and illegal immigration sweeps. Trump’s pardon did do all of that.
But it also did something more: It boosted a radical theory of law and American history that Arpaio supports, and which is gaining steam across the United States.
It’s called the “constitutional sheriff” movement, and as it grows, it’s increasing the risk of conflict between local law enforcement and federal authorities. Its animating idea is that a sheriff holds ultimate law-enforcement authority in his county—outranking even the federal government within its borders.
In his counter argument to President Trump and his “radical” Constitutional Sheriffs, however, this report notes, Professor Tsai ludicrously claims that “the most basic principle of the original American Constitution is that of federal supremacy”—an insane claim of lunacy making one wonder how this leftist idiot even got a law license, let alone why anyone would allow him to teach students, as the 10th Amendment to the Constitution of the United States unambiguously shoots down such federal supremacy claims with the words: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”—which is why, if Professor Tsai took his socialist blinders off to see, hundreds of American states, cities and counties are able to openly defy US federal law with their sanctuaries for law breaking illegal aliens—and that the US federal government can’t do anything about.
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At the same time President Trump is using his Constitutional Sheriffs to counterbalance the corrupt FBI, this report concludes, he has further moved to begin handing over the security of his Cabinet Officials to the US Marshals Service—a wise move as their current troubled Secret Service protectors are continuously being mired in scandal and corruption—and timely as both the Secret Service and FBI have yet explain why suspected sniper-assassin Brandon Magnan was allowed to walk free from a US Federal Courthouse last week after he penetrated multiple layers of security to place himself with shooting range of President Trump—a most critical question needing to be answered due to what occurred on 22 November 1963 to the last American leader who came up against these monsters—and was when the Secret Service detail protecting President John F. Kennedy were filmed being ordered not protect his life—then saw Kennedy having his head blown off a few minutes later—an assassination the FBI didn’t even bother to really investigate—all because FBI Director J. Edgar Hoover hated Kennedy with every fiber of his being—and one hopes and prays Trump can prevent from happening again to himself.
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January 15, 2020 EU and US all rights reserved. Permission to use this report in its entirety is granted under the condition it is linked to its original source at WhatDoesItMean.Com. Freebase content licensed under CC-BY and GFDL.
[Note: Many governments and their intelligence services actively campaign against the information found in these reports so as not to alarm their citizens about the many catastrophic Earth changes and events to come, a stance that the Sisters of Sorcha Faal strongly disagree with in believing that it is every human being’s right to know the truth. Due to our mission’s conflicts with that of those governments, the responses of their ‘agents’ has been a longstanding misinformation/misdirection campaign designed to discredit us, and others like us, that is exampled in numerous places, including HERE.]
[Note: The WhatDoesItMean.com website was created for and donated to the Sisters of Sorcha Faal in 2003 by a small group of American computer experts led by the late global technology guru Wayne Green(1922-2013) to counter the propaganda being used by the West to promote their illegal 2003 invasion of Iraq.]
[Note: The word Kremlin (fortress inside a city) as used in this report refers to Russian citadels, including in Moscow, having cathedrals wherein female Schema monks (Orthodox nuns) reside, many of whom are devoted to the mission of the Sisters of Sorcha Faal.]
Trump Throws Leftists Into Chaos After Committing Crimestop Thought Offense
Magical Millennials Chart History Free Star-Path To Their Own Destruction
Lincoln Jailed Over 13,000 Journalists—Roosevelt Went Around Them—Now Trump Presides Over Their Destruction
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Doug Casey on Silver’s Many Uses and What It Means for Its Future Price
Via International Man
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International Man: Doug, let’s start with the basics. What makes silver useful and valuable?
Doug Casey: Throughout history, three metals have been used as money: gold, silver, and copper. All share the five qualities of good money—durability, divisibility, portability, consistency, and intrinsic value—but in different proportions. All three metals can be bought for the same reasons as well—each is a long-term store of value, a medium of exchange, and an interesting speculation, at least periodically.
Gold has always been, and probably always will be used primarily as money. Copper will probably remain an industrial metal. Silver falls neatly in between them both in price, the way it’s used, and where it fits into your investment portfolio. It can be viewed both as a way to save—like gold—and a way to speculate—like copper.
Of the 92 naturally occurring elements, silver is the most reflective and the most conductive of both heat and electricity. Those things make it a high-tech metal; there are new uses discovered for it almost every day.
You’ll recall that gold is the most malleable, the most ductile, and the most inert of the elements. Both of these monetary metals have “use” characteristics that distinguish them.
The economics of production are quite different for gold and silver. There are very few stand-alone silver mines that make money at today’s silver price. Most silver is only a byproduct of lead, copper or gold operations. Most of the gold mines in the world today are profitable; however, even when using “all-in sustaining costs,” which include everything from admin to prospecting to replace reserves and to site reclamation years in the future. In the past, most mines reported only cash costs.
To use the rough numbers, about 800 million ounces of silver and 80 million ounces of gold are produced annually. However, there also are no substantial inventories of silver in the world, and unlike gold, where most of the 6 billion ounces, which have been mined over the course of history, are still in existence and being stored somewhere.
The market dynamics of silver are very different from those of gold in a number of ways. One important consideration for a speculator is that silver is a much smaller market, partly because an ounce of gold is worth about 80 times more than an ounce of silver. When people get interested in it, it tends to move explosively.
International Man: While silver has monetary value, it is primarily an industrial metal. What are the implications?
Doug Casey: If the economy slows down a lot, which I expect as we go into the Greater Depression, industrial metals are likely to get hurt. But silver has a few things that ameliorate that situation.
As I said, more high-tech uses are being discovered all the time, helping the consumption side of the equation. The fact that it’s mostly a byproduct of industrial metals means that as their production drops in an economic downturn, the production of silver will drop as well.
I’m much more bullish about silver than any other industrial metal—with the possible exception of uranium. At the same time, the fact that it’s a monetary metal is going to bring in a lot of buying from savers and speculators, further supporting its price.
International Man: During a gold bull market, silver tends to perform better than gold. Why is that?
Doug Casey: Although about 80 million ounces of gold are produced every year, new production of gold is really unimportant to its price. That’s because all the gold that’s ever been mined, the 6 billion ounces that I mentioned before, is still above ground. What influences its price is the desire of people to hold it—not the roughly 1.3% added to its inventory every year. Gold is almost unique in this regard.
With silver, however, there’s not a huge relative amount of inventory to deal with. I don’t have that number, but it’s basically about new mine production. Silver inventories are in line with other industrial metals—very different from the days when the US government alone owned two billion ounces, not counting the billions more that used to be in US dimes, quarters, halves, and silver dollars. In relative terms, everything about silver is small, and small markets by their nature tend to be volatile.
There’s another thing: For many years, silver has developed a lot of fans who see it almost as a religious icon. Maybe they’re people that can’t afford gold, but silver has always, for some reason, been viewed as almost a magical element by some people, mostly Americans. They’re much more fanatical than gold bugs (among which I have to number myself).
Copper is the third monetary metal. Ever since ancient times, we’ve had not only gold coins and silver coins but copper coins as well. Most people are unaware that there’s no longer much copper in pennies. Before 1982, pennies were 95% copper and 5% zinc. Since then, they’re 97.5% zinc and 2.5% copper. It’s just a copper coating because copper’s too valuable to put into the coins; it is a subtle, but effective fraud.
In fact, it costs the U.S. government about two cents to make every zinc penny fraudulently represented as a copper penny. Of course, when all the silver went out of higher denomination coinage in 1965, the average American neither knew nor cared that what used to be 90% silver is now just copper clad with nickel to look like silver.
I’m sure that the penny and all other coins will go out of production in the near future. Even parking meters now accept credit cards—which are also on their way out.
Pennies, nickels, and dimes are barely worth picking up. What can you buy with a quarter? Basically nothing. A silver quarter is worth about $4, however.
In fact, all metal coins are going out of production in the same way that paper money is, unfortunately, giving way to digital money. We shouldn’t call them “coins”; coins have value for the metal they’re made from. All we have today are tokens, officially ordained slugs.
International Man: Silver is prone to crisis-driven price spikes. How has this played out in the past, and how does it compare with the situation today?
Doug Casey: In the 1960s, there was a book, Small Fortunes in Penny Silver Stocks, written by Norman Lamb. It was very influential at the time. The book talked about the Spokane stock exchange, which no longer exists. It primarily listed silver companies—roughly 100 of them, in the Coeur d’Alene area.
In the book, Norman pointed out one silver stock, Coeur d’Alene Mines, which, during the great bull market from the early 60s to 1968, went from two cents to $20.
A 1,000-to-one shot. Coeur d’Alene Mines still exists today, which is pretty unusual, because most mining stocks are burning matches.
Silver broke free from its government-mandated price of $1.29 and hit about $6 an ounce. You have to remember that for most of the history of the US, silver was price-controlled by the US government and at a fixed ratio with gold—about 17-1. That proved unsustainable, like all price controls.
Ratios between commodities—hogs to cattle, wheat to soybeans, you name it—are constantly changing with various supply-and-demand factors. The fact that its ratio to gold used to be much lower than it is today is not particularly a reason why I’m bullish on silver.
I’m bullish on it mainly because commodities are about the only area of the financial markets that haven’t seen a bubble, such as stocks, bonds, and housing. But I believe they will.
If we get the kind of precious metals bull market that I’m anticipating, mining stocks, particularly silver stocks, could do phenomenally well. We’ll see them move 10-1 as a group, with some doing much better. It will have been worth the wait.
Editor’s Note: Doug Casey’s forecasts helped investors prepare and profit from: 1) the S&L blowup in the ’80s and ’90s, 2) the 2001 tech stock collapse, 3) the 2008 financial crisis, 4) and now… Doug’s sounding the alarms about a catastrophic event. One he believes could soon strike. To help you prepare and profit, Doug and his team have prepared a special video. Click here to watch now.
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- Edited 10:38am Jan 16, 2020 9:41am | Edited 10:38am
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Authored by Richard Breslow via Bloomberg,
Well the cat’s out of the bag...
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The worst kept secret in the financial world is now not only accepted orthodoxy, but finally being discussed openly by, at least some, authorities.
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Central bank policies are directly driving asset prices and the bubbles therein. It’s what they do. It has been so stunningly obvious that, at this point, it makes a mockery of things to deny it as an ongoing, and essential, part of how their strategy is implemented. Oddly enough, however, it’s a revelation that is, apparently, coming late to many people with a lot of savings and nothing to show for it. And it is an undeniable factor in this January’s price action.
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- Alan Greenspan knew it to be the case.
- Ben Bernanke had no problem with it. His strategy required it.
- Jerome Powell, was probably initially not enamored about it but saw no way around it. It fell on ardent loyalists to take his insistence that it was “not QE” with any seriousness. Otherwise, they would have had to admit to knowing little about financial markets.
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In some ways it was refreshing that Dallas Fed President Robert Kaplan openly talked about it in an interview Wednesday. Although he did couch it in terms that implied it was a matter of some concern to him. But, of course, he went on to say, “we’ve done what what we need to do up until now.”
“My own view is it’s having some effect on risk assets,” Kaplan said.
“It’s a derivative of QE when we buy bills and we inject more liquidity; it affects risk assets. This is why I say growth in the balance sheet is not free. There is a cost to it.”
He doth protest, just not so much. Their ability to drive investor behavior is so well established that what is going on in the markets can’t remotely be seen as an unintended, or even unwanted, consequence.
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At this point, is it a bad thing to admit something that is so patently evident to everyone?
The answer is probably yes.
They have always been responsive to financial conditions. In many ways they’ve been transfixed by them. Now they are openly acknowledging that they own them. And once you do so, it becomes harder than ever, if even at all possible, to give them back. Kaplan said they need to “come up with a plan and communicate a plan for winding this (balance sheet) down.”
That would be nice. And good luck with that.
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A long-time and favorite parlor game has been debating when, and if, the Fed “put” would kick in on any market upsets. It was even acceptable to try to argue whether one existed or not. Although that might have just been an attempt at being provocative. Now the presumption among investors, institutional and retail alike, is that it is fully in force. Maybe more so than ever. Fully enhanced by policies that are not changing anytime soon.
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At this point, you have to wonder if it even matters whether it is true or not. We are back in the mode of just wanting to find something to buy. Stocks act as if they are bullet-proof. Stock buy-backs look like they are front-running the inevitable rather than being the cause of it. Reports of new all-time highs, need to include the word “again.”
Calls to exercise caution by limiting duration are once again being dismissed as just leaving yield on the table. Italy sold 30-year debt this week. A 7 billion euro offering saw bids of some 45 billion euros. And this hasn’t been an isolated case. Other European countries have been enjoying the opportunity. Bond issues from Japan and Australia flew off the shelves earlier this week. Five-year JGB yields at negative 9.5- basis points were seen as oozing value.
We, quite properly, worry that central banks are running low on ammunition to fight any future recession. This translates into what looks like a “risk-on” environment. But it is just the opposite. Yield remains the primary game in town. With an expectation that it will be in dwindling supply.
This is not to say that investors are at all acting irrationally. And central banks feel they have no choice in the absence of broader policy prescriptions. It’s merely an attempt to describe what we all see. Most worryingly, I keep hearing from people who are sure that it’s obvious where we go from here.
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The Fed Won’t Avert The Next “Crisis,” They Will Cause It.
Written by Lance Roberts | Jan 16, 2020
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John Mauldin recently penned an interesting piece:
“Ignoring problems rarely solves them. You need to deal with them—not just the effects, but the underlying causes, or else they usually get worse. In the developed world, and especially the US, and even in China, our economic challenges are rapidly approaching that point. Things that would have been easily fixed a decade ago, or even five years ago, will soon be unsolvable by conventional means.
Yes, we did indeed need the Federal Reserve to provide liquidity during the initial crisis. But after that, the Fed kept rates too low for too long, reinforcing the wealth and income disparities and creating new bubbles we will have to deal with in the not-too-distant future.
This wasn’t a ‘beautiful deleveraging’ as you call it. It was the ugly creation of bubbles and misallocation of capital. The Fed shouldn’t have blown these bubbles in the first place.”
John is correct. The problem with low interest rates for so long is they have encouraged the misallocation of capital. We see it everywhere throughout the entirety of the financial system from consumer debt, to subprime auto-loans, to corporate leverage, and speculative greed.
Misallocation Of Capital – Everywhere
Debt, if used for productive purposes, can be beneficial. However, as discussed in The Economy Should Grow Faster Than Debt:
“Since the bulk of the debt issued by the U.S. has been squandered on increases in social welfare programs and debt service, there is a negative return on investment. Therefore, the larger the balance of debt becomes, the more economically destructive it is by diverting an ever-growing amount of dollars away from productive investments to service payments.”
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Currently, throughout the entire monetary ecosystem, there is a rising consensus that “debt doesn’t matter” as long as interest rates and inflation remain low. Of course, the ultra-low interest rate policy administered by the Federal Reserve is responsible for the “yield chase,” and the massive surge in debt since the “financial crisis.”
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Yes, current economic growth is good, but not great. Inflation, and interest rates, remain low, which creates an “illusion” that using debt remains opportunistic.
However, as stated, rising levels of non-productive debt has negative long-term economic consequences.
Before the deregulation of the financial industry under President Reagan, which led to an explosion in consumer credit issuance, it required just $1.00 of total system-wide debt to create $1.00 of economic growth. Today, it requires $3.97 to create the same $1 of economic growth. This shouldn’t be surprising, given that “debt” detracts from economic growth as the “debt service” diverts income from productive investments and leads to a “diminishing rate of return” for each new dollar of debt.
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The irony is that while it appears the economy is growing, akin to the analogy of “boiling a frog,” we accept 2% economic growth as “strong,” whereas such growth rates were previously considered near recessionary.
Another conundrum is that corporations, and financial institutions, appear to be healthier, not to mention wealthier than ever. If such is indeed the case, then why is the Federal Reserve still needing to engage in “emergency monetary measures” to support the financial markets and economy after more than a decade?
As John stated above, the Fed’s actions are only “ignoring the problems” which, combined, is a problem too large for the Federal Reserve to fix.
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The Dark Side Of Stock Buybacks
While many argue that “share buybacks” are just a method by which corporations can return cash to shareholders, there is a dark side. In moderation, repurchases can be a beneficial method for a company to deploy capital when no better options are available. (It’s the least best use of cash.)
But, as with everything in life, when taken to “excess” the beneficial effects, can become detrimental.
“The rules now reward management, not for generating revenue, but to drive up the price of the share price, thus making their options and stock grants more valuable.” – John Mauldin
The problem for the Fed was, despite the best of intentions, lowering interest rates to zero did not spark a “bank lending spree” throughout the economy. Instead, the excess liquidity flowed directly back into the financial system, creating a global wealth gap, rather than supporting stronger economic growth.
The most vivid example of this “closed loop” was in corporate share repurchases. Corporations, able to borrow cheaply due to low rates, used debt and cash to repurchase shares to increase earnings per share. This was the easiest route to create “executive wealth,” rather than deploying capital in more risky endeavors. As the Financial Times penned:
“Corporate executives give several reasons for stock buybacks but none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay and in the short-term buybacks drive up stock prices.”
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Importantly, as noted by the Securities & Exchange Commission:
“SEC research found that many corporate executives sell significant amounts of their own shares after their companies announce stock buybacks.”
Again, buybacks may not be an issue, but when taken to excess such can have the negative side effects of inflating asset bubbles. As John Authers pointed out:
“For much of the last decade, companies buying their own shares have accounted for all net purchases. The total amount of stock bought back by companies since the 2008 crisis even exceeds the Federal Reserve’s spending on buying bonds over the same period as part of quantitative easing. Both pushed up asset prices.”
“Stock buybacks” are only a short-term benefit. With liquid cash, or worse debt, used for a one-time benefit, there is a long-term negative return on uses of capital for non-productive investments.
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All Levered Up
Currently, total corporate debt has surged to $10.1 trillion – its highest level relative to U.S. GDP (47%) since the financial crisis. In just the last two years, corporations have issued another $1.2 trillion of new debt NOT for expansion, but primarily used for share buybacks.
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For the last 10-years, the Fed’s “zero interest rate policy” has left investors chasing yield, and corporations were glad to oblige. The end result is the risk premium for owning corporate bonds over U.S. Treasuries is at historic lows, and debt has allowed many “zombie companies” to remain alive.
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During the next market reversion, the 10-year rate will fall towards “zero” as money seeks the stability and safety of the U.S Treasury bond. However, corporate bonds will be decimated. When “high yield,” or “junk bonds,” begin to default in large numbers, as they always do in a recession, which is why they are called “junk bonds,” investors will face sharp losses on the one side of their portfolio they “thought” was safe.
As the credit market falls into crisis, the Fed will have to ramp up additional stimulus to bail out the financial institutions caught long with an exceeding amount of poor-quality debt. As shown below, Treasuries will gain a bid as yields fall to zero, while corporate bonds lose value.
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“In just the last 10 years, the triple-B bond market has exploded from $686 billion to $2.5 trillion—an all-time high. To put that in perspective, 50% of the investment-grade bond market now sits on the lowest rung of the quality ladder.
https://realinvestmentadvice.com/wp-...n-BBB-Debt.png
And there’s a reason BBB-rated debt is so plentiful. Ultra-low interest rates have seduced companies to pile into the bond market and corporate debt has surged to heights not seen since the global financial crisis.” – John Mauldin:
As noted previously, there is a large tranche of BBB bonds on the verge of being downgraded to “junk.” When this occurs, there will be an avalanche of selling as pension, mutual, and hedge fund managers dump bonds simultaneously into what will be an illiquid market.
https://realinvestmentadvice.com/wp-...be-YOUTUBE.jpg
Pensions Are Broke
But it is NOT just “share buybacks” and debt, which are problems hiding in plain sight.
“Moody’s Investor Service estimated last year that the total pension funding gap in the U.S. is $4.4 trillion. A few months ago, the American Legislative Exchange Council estimated it at nearly $6 trillion.”
With pension funds already wrestling with largely underfunded liabilities, the aging demographics are further complicating funding problems.
The $6 Trillion “Pension Crisis” is just one sharp market downturn away from imploding. As I wrote in “The Next Financial Crisis Will Be The Last:”
“The real crisis comes when there is a ‘run on pensions.’ With a large number of pensioners already eligible for their pension, the next decline in the markets will likely spur the ‘fear’ that benefits will be lost entirely. The combined run on the system, which is grossly underfunded, at a time when asset prices are declining, will cause a debacle of mass proportions. It will require a massive government bailout to resolve it.”
This $6 trillion hit is going to come at a time where the Federal Reserve will already be at “full tilt” monetizing debt to stabilize declining financial markets to keep a “debt crisis” from spreading.
https://realinvestmentadvice.com/wp-...one-Banner.jpg
Strike Three, You’re Out
While investors have become extremely complacent over the last decade that Central Banks have gained control of the financial markets, this is likely an illusion.
There are numerous catalysts which could pressure a downturn in the equity markets:
- An exogenous geopolitical event
- A credit-related event
- Failure of a major financial institution
- Recession
- Falling profits and earnings
- A loss of confidence by corporations which contacts share buybacks
Whatever the event is, which is currently unexpected and unanticipated, the decline in asset prices will initiate a “chain reaction.”
- Investors will begin to panic as asset prices drop, curtailing economic activity, and further pressuring economic growth.
- The pressure on asset prices and weaker economic growth, which impairs corporate earnings, shifts corporate views from “share repurchases” to “liquidity preservation.” This removes a major support of asset prices.
- As asset prices decline further, and economic growth deteriorates, credit defaults begin triggering a near $5 Trillion corporate bond market problem.
- The bond market decline will pressure asset prices lower, which triggers an aging demographic who fears the loss of pension benefits, sparks the $6 trillion pension problem.
- As the market continues to cascade lower at this point, the Fed is monetizing nearly 100% of all debt issuance, and has to resort to even more drastic measures to stem selling and defaults.
- Those actions lead to a further loss of confidence and pressures markets even further.
The Federal Reserve can not fix this problem, and the next “bear market” will NOT be like that last.
It will be worse.
As John concluded:
Coordinated monetary policy is the problem, not the solution. And while I have little hope for change in that regard, I have no hope that monetary policy will rescue us from the next crisis.
Let me amplify that last line: Not only is there no hope monetary policy will save us from the next crisis, it will help cause the next crisis. The process has already begun.” – John Mauldin
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https://realinvestmentadvice.com/wp-...lance_sig1.gif
Lance Roberts is a Chief Portfolio Strategist/Economist for RIA Advisors. He is also the host of “The Lance Roberts Podcast” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter, Linked-In and YouTube
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- Edited 10:50am Jan 16, 2020 9:59am | Edited 10:50am
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
Special Update this Weekend for Pro Level on Socrates
Blog/ECM
Posted Jan 16, 2020 by Martin Armstrong
https://d33wjekvz3zs1a.cloudfront.ne...0-Detailed.jpg
As we have reached the turning point for the conclusion of this 8.6-year wave, there is so much going on even politically it is mind-blowing. Everything from Impeachment of Trump which may bring a surprise, European army, constitutional change in Russia, riots in Iran, a new record high in the US share market, the bounce in gold, to so many other aspects, not the least of which may be the end of negative interest rates, the field is so crowded because this is indeed a very important turning point.
https://d33wjekvz3zs1a.cloudfront.ne...A-1024x595.jpg
Some people just do not believe in cycles and certainly not the business cycle. They are typically those who support government manipulation of society and are just Marxists at heart. We need people like that to trade against. So never waste your time trying to convince them. If they lack the curiosity to explore, they lack the mental capacity to accept the government is not their parent.
https://d33wjekvz3zs1a.cloudfront.ne...1-ECM-2032.jpg
We only have two waves left before this becomes a major change in the entire world’s political and economic structure.
This update will be market-oriented for traders so this is for the Pro level.
Categories: ECM, Regulation
« PRIVATE BLOG – The Turning Point
- Post #7,530
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- Jan 16, 2020 1:06pm Jan 16, 2020 1:06pm
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
As first reported on Tuesday, moments ago the BLS confirmed that starting March 1, the Trump admin will ban all electronics including computers from the room where journalists receive early advance access to major economic reports such as the monthly payrolls report, in an effort to "ensure a level playing field", a U.S. official told the same wire services that stand to suffer the most from this major overhaul of how economic data is disseminated in a time of HFTs, when a 1 millisecond delay can mean the difference between profit and loss.
As discussed on Tuesday, currently, the Labor Department hosts "lockups" for major reports lasting 30 to 60 minutes, where journalists receive the data in a secure room, write stories on computers disconnected from the internet, and transmit them when connections are restored at the release time.
And confirming our speculation that this was a way for the Trump admin to hit Mike Bloomberg and his eponymous organization where it hurts, the U.S. official, speaking on a conference call with journalists, said "the change is being made because several news organizations that participate are able to profit by providing the numbers to algorithmic traders in a format that provides them an advantage."
Translation: Trump is now going after the source of Mike Bloomberg's wealth - the selling of zero-latency market-moving information to HFTs.
The overhaul will take effect March 1, the official said. Labor Department officials were asked if the change was specifically aimed at Bloomberg News, which participates in the lockups and whose founder and majority owner, Michael Bloomberg, is running for the Democratic presidential nomination. The official denied any political motivation and cited a prior recommendation by the Labor Department’s inspector general.
For those who missed the background on this critical, to all market participants, strateigsts, and traders story, here it is again.
Any time the US Department of Labor releases the jobs report on the first Friday of the month, wire agencies such as Bloomberg and Reuters already have a prepared barrage of market-moving data points ready to go to their paying subscribers (and, on the nanosecond, to frontrunning HFT clients) together with a commentary wrapper that is prepared in the 30-60 minutes before the official data release, prepared by journalists who are in "lockup" in a given government data room, which is meant to prevent them from leaking the data to other, more interested (and better funded) parties.
This is shown schematically in the image below.
https://zh-prod-1cc738ca-7d3b-4a72-b...S%20Lockup.jpg
However, starting as soon as this week, the "lockup" may now be history, as well as those flashing red jobs headlines that set the market mood for the day, and often, the rest of the month (assuming, of course, that eventually fundamentals will matter again), because in what Bloomberg dubbed the "biggest change to economic data releases in decades", the Trump administration plans to limit the news media’s ability to prepare advance stories on market-moving economic data, such as the monthly jobs report, "in a move that could create a logjam in accessing figures such as the monthly jobs report."
Needless to say, Bloomberg - along with Reuters, and countless other wire services, who sell lockup data to extremely generous HFT clients for a lot of money - are not happy.
As noted above, currently the Labor Department hosts “lockups” for major reports lasting 30 to 60 minutes, where journalists receive the data in a secure room, write stories on computers disconnected from the internet, and transmit them when connections are restored at the release time.
However, for reasons not fully clear, the department under pressure from the administration, is looking at changes such as removal of computers from that room, and an announcement could come as soon as this week, said Bloomerg sources.
That, as Bloomberg which would be directly and very adversely affected notes, "could hinder the media’s ability to provide headlines, comprehensive stories and tables at the exact release time."
That's one interpretation, another is that it will further democratize information, allowing, or rather forcing, everyone to come up with their own fast take of the data, and even open up the field to new competitors who currently don't have access to the lockup.
Indeed, as one FX strategist noted, "Quant strategies focusing on reading headlines will need a rethink. Will lead to huge info asymmetry post data releases. Although may boost role of market economists who need to digest raw data as quickly as possible."
https://pbs.twimg.com/profile_images...k1U_normal.jpgViraj Patel@VPatelFX
This is big for markets. Quant strategies focusing on reading headlines will need a rethink. Will lead to huge info asymmetry post data releases. Although may boost role of market economists who need to digest raw data as quickly as possible. Watching closely https://abs.twimg.com/emoji/v2/72x72/1f440.png #GameChanger
https://pbs.twimg.com/media/EORT4MvW...jpg&name=small
31
4:01 PM - Jan 14, 2020
Did we mention that Bloomberg isn't happy? As the news organization belonging to the Demcoratic presidential candidate notes, "the move would upend decades of practice, and media organizations including Bloomberg News and Reuters have challenged prior changes to procedures. The shift could also spur an arms race among high-speed traders to get the numbers first and profit off the data, raising questions about fairness in multitrillion-dollar financial markets."
Thank you for the spin Bloomberg, but the arms race between HFTs has been going on for a decade, and it is companies like Bloomberg that not only enabled it but profited generously from it. In fact, a contract that shoots over the data with zero latency is said to cost millions of dollars, something which Bloomberg will not be too happy to see flee to those who are faster and more accurate at reading the data in real time.
There is another fringe benefit such an action would deliver: the US government would finally have to enter the 21st century with modernized websites:
ap featuring a curated list of must-read stories.
Without news services transmitting their reports at the release time and allowing additional access points, the government may have to prepare its websites to handle potentially heavier loads under the new system, which could mean adding security measures or increasing the traffic capacity.
To be sure, this is not the first time the government tried to overhaul the lockup structure: in 2012, Obama's Labor Department sought to alter lockups to require journalists to use government-owned computers to write their stories. Officials at the time framed the change as addressing security risks.
After protests from Bloomberg News and other news organizations, and a congressional hearing in which editors testified, the department agreed to allow the media to continue using their own equipment and data lines. Reporters are required to leave mobile phones and other electronic devices in lockers outside of the lockup room, along with personal effects such as umbrellas and purses.
On the other hand, it's not like this move would be unprecedented: the Labor Department move would follow a similar decision by the U.S. Department of Agriculture in 2018 to scale back lockups covering farm products, particularly the closely-watched monthly crop forecasts that typically move markets in soybeans, corn and wheat.
Finally, the big question remains: why is Trump doing this? One potential explanation is that Trump is seeking to hit his political challenger, Mike Bloomberg, where it hurts: As we noted earlier, if the BLS removes lockups, "billions in HFT data feed fees to wire services like Reuters and Bloomberg go up in smoke." Leading to the logical question: "Is this Trump targeting Bloomberg terminal?", which for decades has been Mike Bloomberg's golden goose, spewing billions in annual subscription fees, allowing him to spend a similar amount to remove Trump at any cost...
- Post #7,531
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- Edited 3:34pm Jan 16, 2020 3:23pm | Edited 3:34pm
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
Authored by Sven Henrich via NorthmanTrader.com,
Watch This!
Don’t tell the complacent but the never ending rally is becoming ever more dangerous. As $ES is currently trading above 3300 it’s now not only extending over 10% above the 200MA it is also now already within a stone’s throw of what used to be considered aggressive price targets for year end of 2020. On January 16. Lol.
https://zh-prod-1cc738ca-7d3b-4a72-b...watch-this.jpg
Recall on December 16 BAML called for an aggressive front loaded $SPX target of 3,333 by March 3. Heck, we may get there this week. More lol.
And of course at 3305 $ES is already a mere 3%-5% from the highest 3,400-3,500 year end targets outlined by several Wall Street analysts baking in good news and earnings growth:
https://zh-prod-1cc738ca-7d3b-4a72-b...mages/CNBC.png
As if earnings still matter. They didn’t last year. At the current rate of continued levitation $SPX would simply need another few weeks to get to these targets.
Of course we know why all his happening. I’ve talked about it in Ghosts of 2000, Repo Lightning and He Knows.
Yesterday Dallas Fed President doubled down on admitting it as well: The Fed’s behind it all.
Kaplan:
“Recent Federal Reserve interest-rate moves seem to have given investors a green light to buy risky assets and this is a concern, said Dallas Fed President Robert Kaplan on Wednesday. “I’m conscious all three of those actions are contributing to elevated risk asset valuations and I think we ought to be sensitive to that at the FOMC and I certainly am,” he said.
While the Fed’s recent purchases of short-term Treasury bills is not technically quantitative easing (QE) because the Fed is not buying securities all along the yield curve, it is having similar effects, he said.
“My own view is [buying bills] is having some effect on risk assets. It is a derivative of QE in that when we buy bills and we inject more liquidity, it affects all risk assets,” Kaplan said.
“Growth in the balance sheet is not free. There is a cost to it,” he said.”
He knows, they know, we know. What we’re seeing here is all the Fed, nothing else.
And as such the liquidity program is relentlessly driving asset prices higher and stretching charts and producing massive technical disconnects.
As such this liquidity event is not that different from the one we saw in the lead up to the January 2018 blow-off top:
https://zh-prod-1cc738ca-7d3b-4a72-b...ges/NYSE-5.png
Relentless, vertical one way action, massive overbought readings and then suddenly a risk reversion that came suddenly and within a 9 day period 3 months of relentless buying were wiped out.
Could something similar set up here? Possibly. Certainly within the realm of possibilities.
Here was the run up to January 2018:
https://zh-prod-1cc738ca-7d3b-4a72-b...ges/2020-1.png
On the way down it sliced through all the support and didn’t stop until the 200MA.
Back then $SPX extended over 13% above its 200MA. Currently $SPX is 10% extended above its 200MA with $VIX very much compressed.
Watch this:
https://zh-prod-1cc738ca-7d3b-4a72-b...s/SPXD-8_2.png
Liquidity driven momentum rallies can keep going beyond all reason or fundamental basis, that’s what bubbles are all about.
The Fed knows what it’s doing and keeps insisting on doing it:
https://pbs.twimg.com/profile_images...XQY_normal.jpg
✔@NorthmanTrader
Repo and balance sheet expansion was forced upon the Fed.
They admit it's causing a melt-up in asset prices.
Their actions are driving the bubble.
Yet they keep doing it.
The is Fed is reckless, irresponsible and hopelessly trapped.
542
5:56 AM - Jan 16, 2020
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As the liquidity machine remains in operation one can’t exclude the possibility that this keeps going. Who’s to say it can’t? A repeat of January 2018 with a 13%+ extension above the 200MA would drive $SPX cash into the 3400 zone.
In Popping the Bubble I talked about a technical fib zone just above as a technical possibility:
https://zh-prod-1cc738ca-7d3b-4a72-b...ages/esfib.png
Am I calling for this move from here? No. I’m merely pointing out the technical precedence following a massive liquidity event. Tax cuts back then, Fed printing now. And hence such a repeat cannot be excluded as a possibility.
At the same time patterns and valuations are so stretched that this market remains under immediate reversion risk and once that reversions triggers (markets will find an excuse) then it’ll become a matter of Fed control and technical support levels to determine where the correction then stops and runs its path. So yes, in a way I’m saying we can keep going up while at risk of reverting at any moment. I’m saying this because that’s the reality of the situation.
I maintain that volatility is setting up for an event and this Fed driven liquidity momentum rally is producing reckless behavior and dangerous market conditions, none of which will matter until a reversal kicks in. But when it does, not if, watch this. It will be fast and furious.
Authored by Sven Henrich via NorthmanTrader.com,
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- Jan 16, 2020 8:15pm Jan 16, 2020 8:15pm
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
- Post #7,533
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- Jan 17, 2020 7:20am Jan 17, 2020 7:20am
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
/ Headlines / World News /
Egon von Greyerz: THE WORST GLOBAL DEPRESSION IN HISTORY IS NEXT
December 24, 2019 49
7103
The last 100 years have been an illusion with fake money, fake assets & debt. We’re are all in for the biggest financial shock in the history of the world…
by Egon von Greyerz of Gold Switzerland
Since the Great Financial Crisis started in 2006, global debt has more than doubled from $125 trillion to $260 trillion. The more money that has been printed, the lower interest rates have gone. In 2006 US short term rates were 5% and between 2008 and 2015 they were ZERO. Today they are at 1.5%. But at the same time almost $13 trillion global debt stands at negative rates.
So the world has manufactured $135 trillion debt with the push of a few buttons and at ZERO cost since 2006. This means that more than 2x annual global GDP has been created at no cost and with no service or goods produced. Instead fake money has been printed which corresponds to TWO YEARS’ global production but no one has done a day’s work or manufactured a single product, so this money has been created out of thin air.
HOCUS POCUS CREATES 1 TRILLION MAN DAYS
Global working population is estimated at 3 billion. Let’s assume on a conservative basis that on average a person works 200 days per year. That would make 1.2 trillion man days for two years. So central banks and governments can with some hocus pocus do the work of over 1 trillion man days. Well, that certainly beats working and is in line with MMT (Modern Monetary Theory) which states that countries can print themselves to prosperity.
Well, this seems to have worked quite well since the Fed was created in 1913 and even more so since 1971 when the debt explosion started in earnest. For the ones who have forgotten, 1971 was when Nixon closed the gold window which allowed central banks to create unlimited money and debt.
WITH AI AND MMT PEOPLE ARE NOT NEEDED
The world is today in the wonderful position that with MMT, or Modern Money Trickery we can now replace work with money printing. In coming years, this could then be taken to its extreme with no one working and no one producing anything, except for a number of robots. For all the world’s needs, unlimited money is printed. This is the real Shangri La and ultimate paradise. But is it really? Because the robots will then take over and get rid of mankind since we will just be superfluous parasites.
This scenario might be the ultimate outcome of AI (artificial intelligence) combined with MMT as well as decadence and irresponsible adherence to false economic theories. But it is fortunately unlikely to happen in my lifetime.
THE THIRD COLLAPSE THIS CENTURY WILL SHOCK THE WORLD
Here we are at the end of the second decade of this century. In the last twenty years we have seen the collapse of a tech bubble and we have experienced the implosion of fake debt aka (also known as) the sub prime debt collapse. Central banks have skilfully but deceitfully navigated between Scylla and Charybdis as in Homer’s Odyssey and managed to avoid the total and final collapse of the system.
But I doubt they will be third time lucky. This time, printing unlimited free money will be recognized for what it is, namely Modern Money Trickery or Wizardry that can’t fool the world a third time in the 2000s. The effect of that will be that buying the dips will fail this time because stocks will soon start their journey to the bottom which is likely to be at least a 75% fall but more probably a 95% fall in real terms. So now as the world discovers that the last 100 years have been an illusion with fake money, fake assets and fake debt, we are all in for the biggest shock in the financial history of the world.
HALF A CENTURY OF WORKING LIFE
I have been fortunate in my working life to experience half of the most remarkable period in the world economy since the Fed was created in 1913.
2019 has for me personally signified the anniversary of a 50 year working life. It is quite an interesting phenomenon that many of the people I meet in my professional life were not even born when I started working. I am obviously extremely fortunate to both have the health and the brain which is functioning although there might be some doubters who would dispute that!
It is obviously incredibly stimulating to work with people who are almost without exception younger than yourself. I was born at the end of WWII and have been extremely lucky to not have been involved in any war or not even a depression. The 1950s and 1960s were decades with a very high quality of life both morally and ethically as well as economically. Those were times when economic growth was achieved through hard work, high moral standards and without excessive debt financing or money printing. In Europe there was law and order and no concern about crime or violence.
ONLY THE CHINESE SAW THE BEGINNING OF THE END IN 1971
But 15th of August 1971 was going to change everything even though nobody except for the Chinese understood it at the time.
The People’s Daily in China said in August 1971:
“These unpopular measures reflect the seriousness of the US economic crisis and the decay and decline of the entire capitalist system.”
The paper went on:
“mark the collapse of capitalist monetary system with the US dollar as its prop”…. “Nixon’s new economic policy cannot extricate the US from financial and economic crisis.”
“The policy is meant to fleece the American working people and to shift the worsening of the US financial and monetary economic crisis onto other countries.”
It is quite remarkable that the Chinese were so clearsighted already back in 1971. But Chinese wisdom has stood the test of time in spite of economic and political upheaval. They saw what was coming already back then. The official Chinese gold holdings are just under 2,000 tonnes. But according to my sources who have close links with China, that figure probably is not more than 1/10th of the actual Chinese gold holdings. A lot of the Chinese gold was stolen by the Japanese during the 1930s and WWII. But there was still major quantities left in China. Today China is the largest gold producer in the world by a big margin. Their annual production is around 450 tonnes. It is generally assumed that the total Chinese production has been kept by the government for decades.
CHINA IS ESTIMATED TO HAVE 20,000 TONNES AND USA LESS THAN HALF OF 8,000T
There are rumours in the market that China is planning to announce a gold backed yuan supported by gold holdings in excess of 20,000 tonnes. If that were true, this would be very supportive for the gold price and also extremely negative for the US dollar. The US supposedly has 8,000 tonnes of gold. But they have not had a physical audit since the 1950s when Eisenhower was president.
Many market experts doubt that the US still has 8,000 tonnes. A major part has been leased to bullion banks and is now in China. All that the US government has is an IOU from a bullion bank that could never return the physical gold. Some of the US gold has also been sold covertly. If China announces a gold backed yuan supported by 20,000 tonnes of gold or more, the US will be at pains to prove that they actually hold 8,000 tonnes of gold.
BULL MARKET SOON TO END
The secular bull market has been kept alive with massive money printing combined with financial as well as verbal manipulation of markets. It is not easy to kill a secular bull which has survived for centuries. Fundamentally and technically we are now at the end of the end of this incredible bull market. It is ending with a bang and does not have far to go. The market could top at any time between the second half of December and first half of January.
We are not just talking about the US market topping but all stock markets globally. Even the UK market which is now in a short term euphoria due to the Boris Johnson election victory. There are a number of technical signals, both long and short term, pointing to this coming top. It is the end not only of a multi decade bull market but most probably also a multi century top. Many historians will write about this in coming years and decades.
The coming secular bear market will be both spectacular and frightening. Very few investors are prepared and when it all starts, most people will believe that they will be saved by central bank money printing. So we will see a lot of bottom fishing in the stock market which will turn out to be many fathoms from the actual bottom. Anyone buying the dips will end up in tears this time and exacerbate the losses that stock investors will suffer.
The world will soon experience the start of the most dramatic bear market in history. It could start slowly but is more likely to quickly accelerate to ever lower lows with the normal fake-out rallies that will suck investors in before the next leg down.
GOLD READY TO SURGE
When stocks turn down, precious metals will surge. Gold is already up 15-20% in 2019 depending on the currency. Also, gold has made new highs this year in most currencies except for in dollars and Swiss francs. In 2020 gold will also make new highs in these two currencies. Gold appreciated rapidly to early September and has since seen a normal correction. This correction will soon finish, at the latest in early January. Technically gold could reach $1,425 before it turns up but although possible, it seems less likely.
Once the metals turn up, silver will be gold on steroids. The gold silver ratio will start crashing from 87 currently down to 30 initially where it was in 2011. This means that silver will go up three times as fast as gold. But remember that silver is extremely volatile and the corrections will be vicious. Thus for anyone who intends to buy silver, do it now with the gold silver ratio at an extreme. Your risk will obviously increase significantly when the ratio falls to for example 60 or 50.
In the gold and silver markets, the combination of strong demand, very limited supply, a paper market that will blow up and China potentially declaring a gold backed yuan will lead to spectacular gains for the precious metals.
THE WORST GLOBAL DEPRESSION IN HISTORY IS NEXT
So 2020 seems to be the very early beginnings of the worst global depression that the world has ever experienced. It will be devastating for everybody. We can all prepare financially by holding some physical gold and silver which is the best insurance anyone can buy against what is coming.
The world is now at the end of a decaying era of free money due to unlimited printing and credit expansion combined with no cost of money. But none of this has reached ordinary people but only the wealthy. Normal people have just ended up with a massive debt, both public and private, that will never be repaid.
THE WORLD WILL SOON LEARN THAT THE EMPEROR HAS NO CLOTHES
Not only is the era of free money over but sadly there will be many unemployed, with no benefits, no pensions and little protection from the government. Until now most governments have got out of trouble by printing false and worthless money. The difference this time is that a little boy will shout out that the Emperor Has No Clothes and the world will realise that the next round of unlimited money printing will be worthless and have ZERO value.
But although the world is now approaching very difficult times, there are many more free things than fake money and these things are our best non financial protection against what is coming.
I am thinking of things like family, friends, nature, books and music. All these things are virtually free and give not only enormous pleasure but are totally essential for the survival of the next phase in history. Mankind has an incredible ability to survive if we form small groups of family and friends who support each other.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45
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- Edited 7:40am Jan 17, 2020 7:25am | Edited 7:40am
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
SAFEST GOLD VAULT IN THE WORLD
January 17, 2020
by Egon von Greyerz
This week I will discuss Fed bubbles and a potential imminent major market event, including an extremely important chart and also the safest private gold vault in the world. But first, last week was overshadowed by Iraq and Iran, which again has reminded us of terrorism in various forms.
Terrorism is not just an act of violence. Cyber attacks can have devastating effects like paralyzing air traffic or making all your digital assets disappear.
The killing of the Iranian General Soleimani reminds us all how near the world is to a nuclear war. The shooting down of a Ukrainian passenger plane “by mistake” in Teheran also tells us how easy it is for a country to press the wrong button. If that happens to be a nuclear button, the consequences would be catastrophic.
FINANCIAL CYBER TERRORISM – A MAJOR RISK
Most of us have no influence over wars or terrorist attacks and therefore we only have limited means to protect ourselves from these events. But a terrorist event that we are all exposed to on a daily basis is financial cyber terrorism.
Most financial assets today are digital. Whether you have a bank account, stocks, bonds or any other financial asset, all you have is a digital entry. In 2018 in the UK financial companies saw a fivefold increase, compared to 2017, in data breaches or cyber attacks.
Just in April 2018, seven UK retail banks, including Santander, Royal Bank of Scotland, Barclays and Tesco Bank, had to limit or shut down their systems after sustained attacks. Losses are major and the cost to repair the systems are substantial.
And it will get worse. Executives at leading UK banks and payment companies say that they are under constant fire from attackers.
For most investors this is a risk area that virtually nobody understands or worries about. Just imagine, a major cyber attack can wipe out your assets totally or at least make them disappear for a very long time before the total position of the bank can be reconstructed.
In our company, we worry about risk on a daily basis. We worry about market risk, financial and economic risk and security risk including cyber attacks. Investors who keep the majority of their assets in the financial system are not protected properly against these risks. Any one of these risks can totally wipe out your paper fortune.
YOUR BEST RISK INSURANCE – PHYSICAL GOLD
This is why it is absolutely essential to keep an important part of your wealth in a form and place that protects you from risks that can bankrupt you. We spent quite some time analyzing these risks already over 20 years ago. The consequence of our analysis was that physical gold stored outside the financial system was the best insurance against financial risk, including currency debasement.
THE BIGGEST AND SAFEST PRIVATE GOLD VAULT IN THE WORLD
But it isn’t enough just to buy gold and store it outside the banking system. The gold must be stored in the safest vaults in the world and in the safest jurisdictions.
For example we offer our clients the largest and safest private gold vault in the world, based in the Swiss Alps. The vault is nuclear bomb proof as well as earthquake and gas attack proof. This short video clip gives a small taste:
AVOID ONLINE TRADING & EMAILS
For a major wealth preservation asset like physical gold and silver, we are opposed to online trading platforms. These might be fine for smaller amounts but not for core capital. Online trading is an unacceptable risk when major amounts of wealth are involved. Human intervention and knowledge of the client is critical to protect against fraud and cyber attacks.
For communication with clients internet and emails are not safe and should therefore be avoided. We use a messaging platform via secure servers in the Swiss Alps. This avoids emails being intercepted.
DATA MUST BE EMP PROTECTED
To protect against cyber security, we keep all company and client data on very secure proprietary servers in the Swiss Alps. All data is backed up in a different mountain which also has EMP (electro magnetic pulse) protection. EMP attacks can destroy all computer data and most companies are not protected against such attacks since this is very costly.
The risks and the protection discussed above are absolutely critical when you store important amounts of your wealth and data. Very few companies and investors take these risks seriously. That is a very grave error.
THE FED IS FOREVER BLOWING BUBBLES
The unwinding of the Fed’s balance sheet from the peak at around $4.5 trillion to $3.75 trillion low took place gradually over a two year period. Then, Bang in early September 2019 all hell broke loose and the fed started pumping major funds into the banking system. One Fed governor called it plumbing but few realized that the Fed was in the process of saving a financial system that is leaking like a sieve.
http://goldswitzerland.com/wp-conten...ll-600x337.jpg
There are currently major problems in the financial system although no central banker dares to admit it. A financial system resting on quicksand is unlikely to ever get pulled out of the mess it is in. And to stop the system from sinking into oblivion, QE or more correctly, unlimited money printing is the only remedy that the central bankers know. But all the printing does is to fill the hole with more quicksand which will guarantee that the financial system sinks into the abyss.
THE SYSTEM NEEDS EVER RISING LIQUIDITY INJECTIONS
It must be obvious even to the bankers that adding more quicksand will only weaken the system further as you can’t solve a problem by the same means that created it in the first place. But they have no other solution. Turning off the money spigots would lead to instant collapse of the system as well as of stock and bond markets.
The banking system was ready to collapse in 2006 when global debt was $125 trillion. A massive infusion of more quicksand, in the form of worthless paper money, gave the impression that the system was saved. At the end of 2006 the four central major banks, Fed, ECB, PBOC and BOJ had total assets of $5 trillion. Today they are at $20 trillion and rising. Both the US, the Eurozone and China have started to expand their balance sheets in the last few months. Japan will certainly follow suit. The leverage effect of central bank liquidity has had the consequence of doubling global debt since 2006 to $260 trillion.
http://goldswitzerland.com/wp-conten...ks-600x317.jpg
DERIVATIVES – A NUCLEAR WEAPON
The explosion of global debt has increased risk exponentially but that is not the biggest problem. The real time bomb is the derivative market. The BIS in Basel and the banks are most probably misreporting the total derivative position which we estimate to be $1.5 quadrillion and maybe over $2 quadrillion. When the real pressure in the system starts, there will be no liquidity in the derivative market and therefore most of these nuclear instruments of self-destruction will be worth nothing. At that point QE could reach the quadrillions as hyperinflation ravages and paper money goes to ZERO.
The banks with the biggest derivative positions are Deutsche, JP Morgan, Citigroup and Goldman Sachs. Together their official position is just below $200 trillion. The real position is probably much higher. We will know when the crisis starts.
FED QE – MANNA FROM HEAVEN FOR STOCK INVESTORS
The $425 billion expansion of the Fed’s balance sheet since QE started in Sep 2019 has been like manna from heaven for stock investors. The Dow has gained over 3,000 points since then. This is the perfect scenario for Trump and his reelection. But he has many other problems to deal with.
As long as global liquidity increases and markets believe that the additional money is actually worth something, stocks can continue their surge.
http://goldswitzerland.com/wp-conten...ty-600x359.jpg
STOCKS IN FINAL STAGE OF UBER-EUPHORIA
But all that is needed in overvalued markets is a break of confidence. And with the 3 dozen global risks that I outlined in last week’s article. The market is now in the final stage of uber-euphoria with prices going up whilst profits are stagnating as the graph below shows.
http://goldswitzerland.com/wp-conten...rp_profits.jpg
40% OF US COMPANIES ARE LOSING MONEY
If we look at the detailed picture it is a lot worse than the picture above shows. Almost 40% of US companies lost money in the last 12 months as the Wall Street Journal just reported. That is a remarkably high percentage and the highest since the late 1990s.
THE DOW IS READY TO CRASH
And if we look at the technical picture, recent highs in stocks are not confirmed by technical indicators. The quarterly chart of the Dow below shows bearish divergence between price and the Relative Strength Index. That is a very bearish signal that eventually will end in a market crash.
http://goldswitzerland.com/wp-conten...jq-600x380.jpg
There are a number of different technical indicators including our proprietary cycle model that points to a top being imminent. It could all happen at any time. How it all unwinds we will soon see. It could start with a slow decline which accelerates down gradually or technically we could have a crash in the next couple of weeks.
As usual we will only know afterwards. What we do know though is that fundamental and technical risks are at an extreme. So anyone who is heavily exposed to the general stock market should consider protecting or reducing his position substantially. Because when the bear market starts it will shock everyone by its relentless decline. Most investors will either stay invested like Alfred or buy the dips and be totally slaughtered.
DOW/GOLD RATIO INDICATES TROUBLE AHEAD FOR THE WORLD
Finally let’s look at the most important chart that tells us the future of the world, stocks and gold. It is the Dow/Gold ratio. This ratio was at 1 in 1980 which means both the Dow and gold were at the same price which was 850. In 1999 the index reached 44. (See chart below) We then saw a decline to 5 in 2011. The ratio has now finished a 9 year correction from the 2011 low. As the chart shows the MACD (Moving Average Convergence/Divergence) turned at the end of 2019. This is an extremely important indicator and tells us that stocks are starting a collapse against gold. The initial target is 1, a 95% fall from today, but I am quite certain that the final level will be well below that.
http://goldswitzerland.com/wp-conten...io-353x450.jpg
Investors who take heed of the chart above are likely to preserve their wealth as long as they hold physical gold outside the financial system. And for the ones that don’t, the years ahead will destroy your paper wealth in money, stocks, bonds and other securities.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45
Matterhorn Asset Management’s global client base strategically stores an important part of their wealth in Switzerland in physical gold and silver outside the banking system. Matterhorn Asset Management is pleased to deliver a unique and exceptional service to our highly esteemed wealth preservation clientele in over 60 countries.
GoldSwitzerland.com
Contact Us
Articles may be republished if full credits are given with a link to GoldSwitzerland.com.
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- Jan 17, 2020 1:46pm Jan 17, 2020 1:46pm
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
If Promoting Wealth Inequality and Social Breakdown Is Evil, The Fed Is Evil
January 17, 2020
The Fed will destroy the nation by widening the wealth/income inequality that is breaking down the nation's social order.
President Reagan was widely mocked in America when he declared the Soviet Union an evil empire, but this calling things by their real name had a profound impact in the Eastern Bloc. The mockery stemmed from the secularized American view that there was precious little moral difference between the USSR and the US, that the USSR was a legitimate "alternative system," and that ramping up Cold war tensions was not just dangerous but useless, as the USSR was as permanent (or more so) than the US.
None of which turned out to be true. While all nation-states harbour multitudes of sins, the Soviet Empire was unique in its mass suppression of basic human rights, its economic failure to better the lives of its imprisoned populations while its military might soared, and the perverse union of a Kafkaesque bureaucracy and an Orwellian propaganda machine epitomized by the old Soviet-era joke that "we pretend to work and they pretend to pay us."
Fast-forward to today's USA where soaring wealth and income inequality is making a social breakdown all but inevitable. Wages for the majority of households have gone nowhere for the past two decades, while the incomes of the top 5% have skyrocketed, with the majority of the gains flowing to the top 0.1%. (See charts below.)
History shows that fast-widening gaps between the super-wealthy / top 5% and the rest of the citizenry inevitably generate social disorder and breakdown. This dynamic is already painfully visible in rising homelessness, suicide rates, opioid addictions, burnout, intolerance, etc.
While there are many dynamics in play that exacerbate wealth / income inequality, the primary driver is the Federal Reserve's near-infinite giveaways to the financial and corporate elites. If we examine why our economy has become a winner take most casino, we find the gaming tables are rigged to favour the few closest to the Fed's money spigots: when JP Morgan gets in trouble by leveraging socially parasitic bets, the Fed steps in and saves their gambles by printing hundreds of billions of dollars in repos.
As a result of the Fed backstop, JP Morgan reported blow-out earnings.
The net result of the Fed's goosing the stock market ever higher is soaring wealth inequality as the average US household gains precious little from record highs, and whatever gains they might have are sequestered in 401Ks and IRAs until they retire.
The Fed justifies its enrich the already rich policies by claiming some of this newly created wealth will trickle down to the masses via walking the wealthy's dogs, polishing their Mercedes, tutoring their over-scheduled kids, busing their tables at $100 per plate bistros and so on.
The stagnant wages of the masses are the trickle down. Average Carlos and Carlita don't get an unlimited line of credit from the Fed; only bankers, financiers and corporations get an unlimited line of credit from the Fed.
If an alien force was purposefully widening America's wealth / income gap to destabilize the nation's social order, would we hesitate to call this force evil? Would we rationalize this force as "no worse than any other force" and an "alternative system" with the same moral standing as free markets and democracy?
Ours is a moral universe, and the first necessary step is to call things by their real name: the Fed is evil. Any force that relentlessly promotes fast-widening wealth / income inequality, knowing full well that the inevitable result is social breakdown, is evil.
If this force were external, its evil nature would not be denied or defended. But because the Fed favour the wealthy and powerful, it masks its evil behind an Orwellian cloak of PR much like the former USSR.
The parallels with the Evil Empire don't stop there. While the Fed pillages the vast majority of Americans and diverts the nation's wealth to the top 0.1%, it claims, absurdly and speciously, to be "helping the commoner." This is as Orwellian as it gets.
The Fed will destroy the nation by widening the wealth/income inequality that is breaking down the nation's social order. Let's call things by their real name: the Fed is evil.
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- Post #7,536
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- Jan 17, 2020 2:04pm Jan 17, 2020 2:04pm
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
- Post #7,537
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- Jan 17, 2020 2:07pm Jan 17, 2020 2:07pm
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
- Post #7,538
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- Jan 17, 2020 2:11pm Jan 17, 2020 2:11pm
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
- Post #7,539
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- Edited 4:52pm Jan 17, 2020 4:34pm | Edited 4:52pm
- | Commercial Member | Joined Dec 2014 | 11,422 Posts
Capitalism in America: How a Dismal Decimal is Robbing Americans Blind
31 Facts Showing How the Rich are Getting Richer and Everybody Else Poorer
JON HELLEVIG
For The Saker Blog
There is no hiding anymore: the United States has become an oligarch-owned banana republic with nukes, and with a monopoly currency which has allowed it to rig the markets for half a century. But now we are only a couple of hours from curtain – Midnight in America.
With the stock market at all-time highs, virtually no unemployment (or so they say), and brisk GDP growth (supposedly) in the last decade, economic analysts would declare that the US economy is in excellent shape. But it isn’t. The stock market is a central bank inflated asset bubble, and what GDP growth there has been is an illusion brought about by the very same financial bubble and by pumping the economy up with record federal borrowings to finance the deficits that America cannot afford. Rigged statistics showing artificially low inflation serve to hold together the Trumped-up American economic narrative. (About the rigged inflation statistics, see this report https://www.awaragroup.com/blog/the-...n5WQboZz_mB-XU).
And the low unemployment figure is nothing but a chimera based on misleading statistics.
In reality, the US economy is failing – and the country with it. At least two-thirds of the population has seen dramatic declines in living standards and half are back to levels of developing nations – without the development.
The big story covered up by all the happy macroeconomic figures repeated by rote by the US establishment – everybody from the president to cable television pundits and Trump fanboys – is the gradual impoverishment of the American worker. That’s an inconvenient truth increasingly difficult to hide as the American dream has turned into a nightmare for huge swathes of the population. As the figures we present below show, the rich are really getting richer, the middle class has been decimated, and half of Americans are poor and destitute of any financial wealth. The super-rich are gobbling up an ever-increasing slice of the American pie at the cost of all the rest who get nothing but table scraps on one side and leftover crumbs on the other, if anything. The resulting stratification of society has brought back a medieval servant economy, where the have-nots are doing odd jobs, cleaning houses, fetching groceries, running errands and deliveries for the feudal rich and the remaining shrinking middle class.
Thanks to the Fed (the American oligarch owned central bank) pushing easy money into the hands of the privileged elite, the super-rich Dismal Decimal – the top 0.1% – have by now amassed as much wealth as they had just before the Great Depression that started with the stock market crash in 1929. A lesson not learned. Back to square one. How will it end this time?
This article is based on an Awara Accounting https://www.awaragroup.com/ study titled “Widening Income and Wealth Gap and Stagnating Wages in America.” https://www.awaragroup.com/blog/wide...es-in-america/ Links and source references to all the facts presented here can be found in said study.
BTW, all the data in this report is derived from official US government sources and American experts analyzing them.
During the last decades, the financial rewards from the rigged markets first flew exclusively into the pockets of the Top 10%, but later it was increasingly the Top 1%, which pocketed most, perfectly illustrated by the charts below.
1. The income of the Top 1% has grown five times as fast as that of Bottom 90% income since 1970, who now earn double the amount of income than 160 million poor of the lower 50% stratum.
http://www.europereloaded.com/wp-con...-3-300x261.jpg
The fortunes of the Top 1% and Bottom 50% are now reversed.
http://www.europereloaded.com/wp-con...-3-300x217.jpg
2. The Top 1% now holds as much wealth as the Bottom 50% combined.
Income inequality obviously leads to wealth inequality, but here the figures are yet more striking in showing the magnitudes of the grab at the top. Since 1989, the the Top 1% captured $21 trillion in wealth, while Bottom 50% lost $900 billion, actually pushing them down to negative wealth, meaning they have more debt than they have assets. On a net analysis, half of Americans own nothing of real value.
http://www.europereloaded.com/wp-con...-1-300x269.jpg
3. http://www.europereloaded.com/wp-con...er-300x195.jpgUntil the creeping coup under Reagan (ER: and Thatcher in the UK), income equality was improving
It was bad enough in 1995 when the Top 1% earned as much as the Bottom 50%, but today the richest 1% already take 20% of all income, leaving the bottom half with only 12%. As the chart shows, back in 1978 – before the neoliberal creeping coup really got going – the trends were reversed. Below, the chart compares income growth since 1920 of the Top 1% to the Bottom 90% (that is, all the rest except the Top 10%). We see that right after Ronald Reagan entered the presidency with his Chicago School snake oil-influenced backers, the income growth of the 1% started its dizzying growth, which is continuing to this date.
http://www.europereloaded.com/wp-con...-1-300x211.jpg
4. Back in 1962, the share of the Top 1% of America’s wealth at 33% was equal to that of the Bottom 90%, but in the early 1980s, the share of the Bottom 90% started a steep descent and by 2016, their share had dwindled down to 21%. Especially after the Federal Reserve shifted its market rigging, low-interest-rate, money-pumping policy into high gear from the beginning of the 2000s, the super rich have experienced a massive rise in their fortunes, as illustrated by below chart.
http://www.europereloaded.com/wp-con...-1-300x225.jpg
But by today, the Top 1% are losers compared with the Top 0.1% – the Dismal Decimal – who are where the music plays.
5. The Top 0.1% now holds as much wealth as the Bottom 90% combined.
A recent study revealed that the concentration on the top is yet much more pernicious. It’s not any more a question of the Top 10%, and not even the Top 1%, as it is the Top 0.1% – the Dismal Decimal – that has now concentrated the wealth of the nation (and half the world) in their greedy hands. The Top 0.1% now holds as much wealth as Bottom 90% combined. As the chart below shows, we are essentially back to the Roaring Twenties…a lesson not learned.
Actually, in the aftermath of the Great Depression, America entered an unprecedented era of four decades of prosperity with a more equal distribution of wealth as the Bottom 90% recovered strongly in distribution of wealth at the expense of the Top 0.1% parasites.
http://www.europereloaded.com/wp-con...-1-300x208.jpg
6. Top 0.1% earnings grew 347% between 1979 and 2017, while the Top 1% “only” gained 157% – the rest gained nothing
http://www.europereloaded.com/wp-con...-1-300x259.jpg
7. The next chart takes a longer perspective – while widening the sample to the Top 10% – and shows their share of the total income since 1910 to 2010. The Roaring Twenties – the period before the 1929 stock market crash and the ensuing Great Depression – experienced the same level of glaring inequality as today’s America. With Franklin D. Roosevelt’s reforms, the egregious average income inequality was tamed and stayed relatively low until Reagan’s fatal presidency. And it’s been downhill ever since – or uphill, if we look at it from the perspective of the rich.
http://www.europereloaded.com/wp-con...-1-300x200.jpg
8. The only economic figure that has managed to look good is the GDP, but that is so only until you bother to find out where it comes from – from the Federal Reserved-fueled asset bubble and massive federal budget deficits financed by record national debts. For an excellent exposé of how rigged and debt-ridden the US economy is, I refer to my earlier report published on the Saker blog: The Oligarch Takeover of US Pharma and Healthcare – And the Resulting Human Crisis. https://thesaker.is/the-oligarch-tak...-human-crisis/ Shortly: The US economy must be seen as a giant Ponzi scheme, which will implode sooner or later. And we are getting to that sooner part now.
Trump habitually and regularly brags about the stock market reaching another all-time high. But that’s really being out of touch with the electorate. Stock market gains exclusively flow to the rich, increasing inequality and the cost of living for the rest. The thing is that, beyond the richest 10%, very few Americans have a stake in the stock market.
In 2016, the richest one percent held more than half of all outstanding stock, financial securities, and all other sorts of equity. The remainder of those asset categories were held by the rest of the Top 10%, who owned over 93% of all stock and mutual fund ownership. What wealth the remaining 90% may own is largely residential housing, the homes where they live. According to Jonathan Tepper, the wealthiest 1% own nearly 50% of stock and the top 10% more than 81%. The so-called middle class owns only 8% of all stock.
This also kills the myth that record highs on the stock market would be good for American retirement savings – with the richest few holding all the shares, there’s nothing in it for the overwhelming majority.
A recent report also showed that only 10% of Americans are invested in pension plans. That is down from 60% in 1980. And those who are, are traditionally more weighted towards bonds and money-market instruments, which suffer from the rigged markets with the artificially low interest rates. The pension savers are hence literally paying for the super gains flowing into the pockets of Top 1%. On the other hand, the super low interest rates are out of grasp for the all but the Top 1%, who gobble up the wealth of the nation with that largesse delivered to them by their Federal Reserve. At the same time, the common household is paying double-digit rates on their credit card debt traps.
9. Below the Top 10%, wages and total household income have been stagnant, at best.
10. Average income of the Bottom 50% has stagnated at around $16,000 since 1980, while the income of the Top 1% has skyrocketed by 300% to approximately $1,340,000 in 2014.
11. 45% of Americans earn annually only 18,000 or less. A recent study found that 53 million Americans or 44% of the working age population earn a median average annual salary of only $18,000. Basically then, at least half of the Americans are working-poor.
12. Middle-class households had in 2015 basically the same income as they had in 1979.
13. In the two decades from 1997 to 2017, only the Top 5% of households saw their income increase
14. For most American workers, real wages have barely budged in decades. By end of 2018, the real inflation-adjusted average wage had about the same purchasing power it did 40 years ago.
15. As the below chart illustrates, the real average hourly wage, which was $20.27 in 1964, had only inched up to $22.27. David Stockman calculated that the real hourly worker’s wage was, in 2019, still at 1972 levels.http://www.europereloaded.com/wp-con...-1-300x200.jpg
16. For full-time employed men, real wages have fallen 4.4% since 1973, according to economist Paul Craig Roberts.
The total average income of men, at $51,212 in 2015, was lower in real terms than it had been in 1974.
17. As of 2014, the average hours worked per week had fallen from around 39 hours in 1970s to under 34 hours. Economist Mike Shedlock calculated that the actual hours worked and the average hourly earnings would deliver a weekly income of $690, well below its $825 peak back in the early 1970s. If we multiply the hypothetical weekly earnings by 50, we get an annual figure of $35,497. That would in 2014 have translated to a 16.4% decline from its peak in October 1972.
18. All labor productivity growth since the 1970s has gone to the robber capitalists. From 1973 to 2013, hourly compensation of a typical (production/nonsupervisory) worker rose just 9% while productivity increased 74%.
19. Nowhere is income inequality and the egregious worsening trend as manifest as in the case of CEO pay. In the 1970s, CEOs made 30 times what typical workers made, but by 2017 the CEOs made 361 times the workers’ pay. According to the Economic Policy Institute, CEO compensation has grown 940% since 1978, while typical worker compensation has risen only 12% during that time.
The Fed-fueled financial market orgy is the main cause for the windfall riches of CEOs, as stock options and the accompanying share buybacks make up a huge part of CEO pay packages. This rising pay of executives was the main factor in the Top 0.1%’s super grab of household income
20. A 2017 study found that 40% of US adults struggle to pay for basic necessities like food, healthcare, housing, and utilities.
21. Most Americans have depleted all their spare resources, as a staggering 78% of full-time workers are reported to live from paycheck to paycheck.
22. Nearly 70% of Americans have virtually no savings. The Bottom 55% have zero savings, while the following 24% – the core of the former middle class – have only $1,000 stashed away.
23. Correspondingly, the Bottom 70% of Americans don’t own any real wealth (beyond rapidly depreciating durables).
24. The other side of the (non-existent) coin is that the same 50% of Americans would obviously struggle to come up with $400 for an unexpected expense. By extension, the former middle class – those with the miserly savings of $1,000 – would also have real trouble in coping with any kind of bill for medical treatment without getting into more debt. Considering the above reported findings (see the chart), only the Top 10% would be financially secure in a medical emergency.
25. According to shocking findings by the American Cancer Society, 137.1 million US residents suffered medical financial hardship in 2018. Americans had to resort to borrowing a total of $88 billion in 2018 only to cover essential medical treatment.
26. A third of young adults, or 24 million of those aged 18 to 34, live in their parents’ home because they cannot afford a home of their own.
27. The income and wealth gap pictures get worse yet when we look at the age distribution of wealth. Younger generations are earning less and own next to nothing (that is, if you are not the golden youth of the 10%). Baby Boomers born between the end of the Second World War and 1964 currently hold wealth that is 11 times higher than that of millennials.
Median Income for Younger and Older Families in Inflation-Adjusted Dollars
http://www.europereloaded.com/wp-con...-1-300x148.jpg
28. The number of full-time jobs with life-sustaining wages – what economist David Stockman calls breadwinner jobs – have not been growing since 2000; by 2014, their number was still 3.5 million or 5% lower than it was at the peak in early 2001. In the same period, 4 million part-time and gig jobs were created.
While the official unemployment figure is presently near historical lows – and at levels that some economists would like to call full employment – there are some big problems with it. 1. Problems with the official unemployment statistics. The officially touted unemployment figures (so-called U3 unemployment) record only those who have been looking for a job during the last 4 weeks, while discouraged long-term unemployed are cleansed from the statistics and left unrecorded as if they would not be in the workforce at all – makes stats look beautiful for the powers that shouldn’t be.
2. The labor participation rate has been falling.
3. New job creation has amounted to only a third of the annual increase in working age population.
4. Part-time and gig jobs count as full-time employment. Any person who takes a part-time or gig job for just a few hours a month is recorded among the employed, although they would rightly be considered unemployed merely clutching at straws.
5. Connected with the previous point, there is also a more general problem with the quality of jobs created. Most jobs created in the last two decades are low-paid, low-skill jobs that do not provide a life-sustaining income considering the cost of living in the United States.
More than one third (36%) of U.S. workers are in the gig economy, doing part-time work or side hustles for companies like Uber, Lyft, Etsy, Amazon Mechanical Turk, Freelancer.com, Ebay or just any odd job they can get from time to time.
29. To make up for the shrinking earnings, the regime is pushing the American population into 21st century debt peonage. Ensnared in the debt trap, US households had nearly $14 trillion in outstanding debt at the end of the third quarter 2019. That debt load now equals 73% of GDP. By the end of 2019, consumption debt alone (not including asset-acquiring mortgages) was up by $2 trillion since 2014.
Since 2004, the weight of the student loan millstone has gone up fivefold, from only $250 billion to today’s $1.5 trillion.
That’s due to the huge price inflation in higher education. The cost of both public and private college escalated by 40% over the general consumer price inflation between 2005 and 2015.
30. Because of the huge rise in the last few decades in cost of living in the US, in Russia, you get the same standard of living for a fraction of the American cost. A Moscow average monthly salary equal to $1,600 (annual $19,200) gives the same purchasing power as a monthly salary of $6,000 in Chicago (annual $72,000). Meaning, you live in Moscow at least as well for a monthly paycheck of $1,600 as you live in Chicago for a paycheck of $6,000. For details, see this report. https://www.awaragroup.com/blog/russ...e1aIVqlvsyZGk4
31. The present oligarch-controlled, rigged, crony capitalist system has killed the American dream – the belief that anyone, regardless of parents’ social status and incomes, can attain success and wealth by hard work and ingenuity. The gates for upward mobility have been shut for the overwhelming majority.
The monopolization of practically all sectors of the economy, the ever increasing bureaucratic restrictions on doing business, the extreme concentration of ownership, and the rigged financial markets have made it increasingly hard for people outside the top echelon of penetrating the financial membrane protecting the elites. A 2017 study by the Federal Reserve Bank of Cleveland found that the probability that a household outside the top 10% made it into the highest tier within 10 years was twice as high during 1984-1994 as it was during 2003-2013.
The United States is an oligarchy
This concentration of the income and wealth at the top proves that the United States is an oligarchy. A 2014, study by Princeton University https://www.businessinsider.com/majo...igarchy-2014-4 demonstrated how the US is a political oligarchy. With this report showing the insanely widening income and wealth inequality, my aim is to show that the country is an economic oligarchy, too. In fact, economic super riches are the precondition for their political power, too.
In America, as always, the oligarchy has achieved their uncontested power in a hermeneutical feedback loop, where the initial wealth of the superrich has bought them increased political power, which has given them increased riches, which has bought them more political power, and so on, until today, when they own practically the whole economy and the entire government.
Clearly the source of higher inequality has been Fed policies, which has pushed cheap money into the pockets of the already rich, who have exclusively then benefited from soaring stock and real estate prices.
Fittingly, we got at the end of 2019 a report revealing that the world’s richest people increased their wealth in the year by $1.2 trillion, a staggering 25%, most of which belong to the oligarchs of the United States.
The question – which I have set to explore in my series, Capitalism in America – is whether there has been a game plan, a long-term strategy or whether intermittent achievements have just spurred the oligarchs on to new economic and political power grabs in the course of establishing their totalitarian rule. I tend to think there has been a long-term plan ever since the establishment of the Federal Reserve. The economic and political history of the United States provide so much circumstantial evidence, which supports the view that there has been a conspiracy of the Wall Street elite.
I shall return to this hypothesis in further installments to this series, Capitalism in America. It is, however, clear – whether through a long-term plan or by a series of ad hoc interventions – the US financial elite has by now completed a creeping coup, which has delivered them absolute economic and political power.
In my investigation of the oligarchization of America – the creeping neoliberal oligarch coup, which was set in full force since Reagan – I have so far completed these instalments:
The first installment was a study showing how all corporate ownership has been concentrated in the hands of the oligarchy, titled Extreme concentration of ownership in the United States http://blogengine.hellevig.net/post/...d-States-.aspx
The second part was a study revealing how the oligarchy has totally taken over US media, titled The Oligarch Takeover of US Media http://blogengine.hellevig.net/post/...porations.aspx
The third installment was a report published on the Saker blog titled New World Order in Meltdown, But Russia Stronger Than Ever https://thesaker.is/new-world-order-...ger-than-ever/
The fourth installment, The Oligarch Takeover of US Pharma and Healthcare https://thesaker.is/the-oligarch-tak...-human-crisis/ was also on the Saker blog.
Next up is a report showing how, from the point of view of political science, the oligarchy has destroyed the social fabric of the US economy and deliberately enacted laws that favor the few over the people. Of particular interest here is how the oligarchy has rigged the political system by institutionally solidifying the mendacious Janus-faced two-party system in order to remove any potential challenge to their rule.
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