Desperate, Delusional, Deranged

Posted on January 17, 2016 by Thundering Heard

Most people likely heard that on December 15, the US Federal Reserve raised interest rates for the first time in nine years. Nine years! And by a measly 1/4 of a percent. With high Madison Avenue puffery, they called this “liftoff”! And why now? Because, they claim, finally, after telling us at the end of every year, for the last six years, that the economy would accelerate in the new year and be able to grow on its own without their “extraordinary measures” (their phrase, not mine) of support, they are declaring, like Bullwinkle, “This time for sure!”

Stock markets are, of course, throwing a tantrum, off to their worst start to a new year ever, screaming, “What?! No more free money for the rich?! You mean we’ll actually have to do something to get money, like–uuuugh–poor people do?”

(Chart source.)

Worst start ever for other countries as well, including Europe as a whole. The 600 largest European stocks (EuroStoxx 600) are down 21% from their peak in April, officially qualifying them for a bear market. Same with China, their stocks lost 21% in the last four weeks (since the Fed raised rates) and are down 44% since their peak in June:

China Stocks Enter Bear Market, Erasing Gains From State Rescue

Stocks in emerging market countries (Brazil, Thailand, South Korea, Malaysia, etc.) peaked in Autumn 2014 (!) and are down 36% since then. This was posted in August:

23 Nations Around The World Where Stock Market Crashes Are Already Happening

Still, many people, especially in the US, believe we are in a global bull market in stocks; despite the fact that US smaller company stocks (Russell 2000 index) are down 22% since their peak in June, 2015. And US Transportation stocks (truckers, airlines, shippers, etc.), which are an excellent barometer of economic activity, are down 28% since their peak.

Even in the midst of this stock market tantrum, a desperate US President said last week that everything is awesome and that “Anyone claiming that America’s economy is in decline is peddling fiction.” Forget about those 45 million US residents on food stamps, and a record number of homeless children, everything is supposedly great. And there was this desperation from the Fed on Friday:

January 15 – Bloomberg (Matthew Boesler): “The U.S. economy should continue to grow faster than its potential this year, supporting further interest-rate increases by the Federal Reserve,” New York Fed President William C. Dudley said. ‘In terms of the economic outlook, the situation does not appear to have changed much since the Fed’s Dec. 15-16 meeting,’ Dudley said, in remarks prepared for a speech Friday… He added that he continues ‘to expect that the economy will expand at a pace slightly above its long-term trend in 2016…’

(Digression: Only someone involved in pseudo-scientific economics is typically deranged enough to try to explain how something can “grow faster than its potential.” Perhaps we should each send our favorite economist a dictionary.)

Why do I call these statements desperation?

For starters, the Federal Reserve’s best computer model for the economy says that the economy is growing at a 0.6% annual rate. That’s less than 1% a year, folks. In other words, stall speed.

JP Morgan says it’s less than that. They expect 0.1%:

Recession At The Gate: JPM Cuts Q4 GDP From 1.0% To 0.1%

I’ve talked here before about the usefulness of economic statistics that governments don’t publish since the governments can’t fake them. I won’t bore you with a lot of them, but here’s one that will give you an excellent idea of the state of things. It shows, over the last 30 years, the cost to companies to transport bulks goods (wheat, copper, coal, oil, iron ore, etc.) by cargo ship around the planet:

(Chart source.)

The first thing to notice is that it costs less to ship cargo now than it has at any time in the last 30 years. And it’s cheaper by a wide margin. If the economy were doing well, cargo ships would be in high demand and charging high prices. That’s hardly the case now; quite the opposite.

Next, check that blue oval at the top of the chart. The index was over 10,000 in early 2008. That was a period of high demand for shipping. It’s useful to know that owners of large ocean-going cargo vessels currently break even when the price they can charge for shipping is between 800 and 1,000 on this index. So with shipping costs as high as they were in 2008, the owners of ships were making a LOT of money–they could charge more than 10 times their expenses for fuel, salaries, maintenance, etc. Now the price is below 400. So the ship owners lose money on every shipment. Competing owners of cargo ships continue to ship at these low prices, even though they are losing money, because they hope their competitors will go bankrupt before they do.

Why is it so cheap to ship goods around the world now? Because global trade and the global economy are tanking, and far fewer goods are being shipped than a few years back. Here’s a chart by HSBC of growth of the global economy calculated in US Dollars. Notice that the line is well below zero for 2015, just like it was in 2009:

Credit Suisse expects Brazil’s economy to have its worst downturn since 1901! That’s right, worse than the Great Depression. As shown by the chart at the link, India’s exports and imports both crashed by 25% over the last year. That’s a huge decline.

So the Fed and other cheerleaders might say: Yes, the world economy is down, but the US has “decoupled” from the world and is doing fine on its own. Well, here’s a perfect depiction of the US economy. It’s a chart of US Industrial Production over the last 45 years:

(Chart: Welcome To The Recession: Industrial Production Crashes Most In 8 Years)

Industrial Production in the US is down over the last year; there’s 1.8% less of it than a year ago. The red-shaded areas on the chart are past recessions. As the dashed line shows, whenever Industrial Production has been this low in the past, we have always already been in a recession. Always. No exceptions.

Governments (and 99 out of 100 economists) announce recessions with a huge lag time. Leading up to the announcement, just when it would help people to be battening down the hatches, they always claim everything is fine and there won’t be a recession, so we should all hold onto our stocks, hold onto our real estate, spend, borrow, and spend some more. Then the long delay in admitting to the recession allows them to say, “Yes, a recession started 10 months ago, but now it’s either over or almost over, so don’t worry, everything is fine. Spend, borrow, and spend some more.”

The Fed’s Dudley also said this week that, if the economy weakened, they would consider negative interest rates for the US. Canadian central bankers say the same. And it has worked so well in Europe! (Ha!) Europe’s delusional central bankers thought that negative interest rates would spur people and companies to save less and spend more. What actually happened? Bank of America explained here that as rates went negative and people couldn’t earn interest on their savings, they saved more, not less. In other words, people, unlike the delusional bankers, are being logical: if they can’t earn any interest, then they have to save more for their future plans, not less. Here are the charts showing exactly this relationship (as rates go down, savings go up) for the negative rate champions Switzerland, Denmark, and Sweden:

European business also failed to fall for the negative rates trick. Instead of borrowing and spending more, they have been pulling in their horns and retiring some of their outstanding debt instead of borrowing more.

As Michael Burry of The Big Short said in his speech at UCLA:

The individual can think different and the individual can act different than those that got us all into this mess. No matter how the economic tides may sweep away the majority, an individual can stand clear.

More than ever, it is crucial to understand that “society’s sanctioned suits,” as Burry labels them so well, do not have your best interests in mind. They have their own interests in mind. Period. And their desperation, delusions, and derangements have created an inevitable economic calamity that will be the greatest in history.

Burry is right: Stand clear!

Saturday morning cartoons

Posted on October 18, 2014 by Thundering Heard

(But) look at these sexagenarian dogs! Their dog-teeth get sharper at every moment. The hairs drop from the fur of an old dog; (but) see these old (human) dogs clad in satin! See how their passionate desire and greed for women and gold, like the progeny of dogs, is increasing continually! Such a life as this, which is Hell’s stock-in-trade, is a shambles for the butchers (executioners) of (the Divine) Wrath; (Yet) when people say to him, “May your life be long!” he is delighted and opens his mouth in laughter.
He thinks a curse like this is a benediction: he never uncloses his (inward) eye or raises his head once (from the slumber of heedlessness). If he had seen (even as much as) a hair’s tip of the future state, he would have said to him (who wished him long life), “May thy life be like this!”
–Rumi, The Mathnawi, Book VI, circa 1270 A.D.

The cartoons at the link below should be required viewing (and understanding!) in school, especially any history or economics class. These cartoons are all from 100 years ago or more. They clearly describe the cementing into law–pending at the time– of the rigged banking, currency, and stock markets that financially enslave almost everyone on the planet to the endless hunger for humongo-profits of the few. They show that at least a some people understood the game then. Sadly, few understand the game even now. How do we get this understanding to everyone so that we can end this vicious travesty? How do we bring in the logic and compassion that clearly show the primitive and self-defeating nature of systematically-enshrined greed? Continue reading →

Currency Balloons

Posted on October 7, 2014 by Thundering Heard

Given the state of most media reporting, it’s sometimes tough to know whether to laugh or cry. Here’s a story from last week about a surge in gold bullion purchasing in Germany in August and September:

German Bullion Dealers Report Major Increase in Sales

Christian Brenner, Chief Executive of Philoro Edelmetalle GmbH: “Already in August we noticed an increase on orders compared to the previous months, but September… September beats it all. From a German viewpoint it’s the strongest month of 2014.”. At their head office in Austria they also register an “overproportional high level” of revenue.

At the end of the article, there is a stumbling attempt to explain the recent surge with no mention of its real reason. Here’s a chart of the Euro showing it losing over 7% of its “value” in August and September, in the context of a 10% loss since May:

It would seem clear that at least some people in Germany and Austria noticed that someone was letting the air out of their Euros and decided to convert to real money.

It was the same for the Japanese in August and September, but much worse overall since the Japanese government has been hellbent on devaluing the Yen for two years. Here’s a chart showing the loss in “value” of the yen of more than 31% in the last three years:

Since these losses in “value” are measured against the biggest balloon of them all, the US Dollar, this is the source of what you may have been hearing lately about the “strong Dollar”! In other words, the “strong Dollar” is simply the result of other major governments succeeding in intentionally letting air out of the balloons known as their currencies.

They are doing this in an attempt to create inflation! Unlike regular people, who like it when prices drop and they can get good deals, governments, being the largest debtors on the planet, want inflation so that their debts can be repaid in cheaper and cheaper currency as time passes. In case you haven’t noticed, that’s a form of grand theft: I’ll borrow money from you today, and pay it back with cheaper money later.

Well so what, you might say. If they are all doing that, what’s the big deal? Continue reading →

More on the stock market

Posted on April 22, 2014 by Thundering Heard

I’m fairly sure that no one in the stock market cared much about my negative comments about stocks from three days ago:

83% of these new stock offerings over the last three months are money-losing companies…That almost equals the all-time record for such madness of 84% in the year 2000 during the internet/tech stock bubble.

But what about when David Einhorn, probably one of the five most successful hedge fund managers ever, says basically the same thing, which he did in a report issued today. Einhorn says he is selling short (that’s betting on a price decline, that is, Einhorn will make money as the prices of these stocks go down) a basket of overvalued tech stocks:

Our criteria for selecting stocks for the bubble basket is that we estimate there to be at least 90% downside for each stock…

So he thinks there is a good chance that the prices of these stocks will decline by 90% or more. Think that can’t happen? Einhorn again:

There is a huge gap between the bubble price and the point where disciplined growth investors (let alone value investors) become interested buyers. When the last internet bubble popped, Cisco (the best of the best bubble stocks) fell 89%, Amazon fell 93%, and the lower quality stocks fell even more.

For anyone interested, Einhorn’s full report is embedded in this article:

David Einhorn: “We Are Witnessing Our Second Tech Bubble In 15 Years” – Full Letter

Here’s another perspective that should make anyone with money in stocks promptly head for the hills (that means sell!). In 2002, after tech stocks crashed, Scott McNealy, co-founder and CEO of Sun Microsystems, gave a famous interview in Business Week. Sun was one of the many tech sock darlings. They made and sold high-powered workstations favored by the scientific community, Wall St, oil and gas engineers, etc. At its peak, the market valued his company at 10 times company sales. Not profits (that’s what is left over after all expenses), but sales, the amount of money that comes in the door prior to all expenses such as salaries, rent, supplies, etc. McNealy described how absurd it was for the market to value his company at 10 times sales:

But two years ago we were selling at 10 times revenues when we were at $64. At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends…That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are?

Well, in mid-March of this year, there were forty companies valued at 10 times sales or higher. The list, compiled by Goldman Sachs, is at this link:

America’s Most Overvalued Companies Are…

On average, these forty are valued at 15 times sales! To quote David Einhorn from his report: “After all, twice a silly price is not twice as silly; it’s still just silly.”

Silly is a direct result of money printing by central banks. The chart in the bottom panel below shows how, since the start of 2008, when the Federal Reserve was printing money (the color-shaded areas on the chart) stocks rose and rose and rose. Anytime they weren’t printing money, stocks fell promptly. So they keep printing. It doesn’t help regular folks, whose real incomes have been declining through this whole period, but it sure helps wealthy stock market investors:

(Chart Source)

It’s very obvious that the sheep are getting set up for another shearing, just as they were in 2000 and again in 2007. When exactly will this shearing take place? I claim no expertise on that score. Can the stock market go higher still? Sure. Clearly it depends on how much money the Federal Reserve prints, how long traders believe in the effectiveness of that printing, and how big the many wars in the world get. But I can tell you for sure, when the shearing happens, “silly” will not be the word on the minds of investors.

I don’t like being shorn, so I have nothing to do with stocks these days. I don’t want my savings anywhere near a brokerage account for reasons described under Lie #6 here. So I don’t have to guess about when the next shearing will take place. If I did want to guess, I would closely follow the work of Jeremy Grantham since he has a multi-decade real-time excellent track record of predicting future returns from stocks. His firm publishes a quarterly newsletter at their web site and Grantham’s comments are followed at web sites like ZeroHedge and King World News. Here are some recent comments:

Jeremy Grantham’s GMO: “The S&P Is Approximately 75% Overvalued; Its Fair Value Is 1100”

Grantham on stocks:

Grantham: We do think the market is going to go higher because the Fed hasn’t ended its game, and it won’t stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market’s mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.

Q: So are you putting your client’s money into the market?

Grantham: No. You asked me where the market is headed from here. But to invest our clients’ money on the basis of speculation being driven by the Fed’s misguided policies doesn’t seem like the best thing to do with our clients’ money.

We invest our clients’ money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That’s how we will pay for this. It’s going to be very painful for investors.

Grantham is a smart fellow and one of the few Wall St people who is honest about the food crisis brewing in the world and certainly one of the very few to quote Bob Marley. He wrote a detailed report on the topic, from the point of view of a numbers man, which he is:

Welcome to Dystopia! Entering a long-term and politically dangerous food crisis

We are five years into a severe global food crisis that is very unlikely to go away. It will threaten poor countries with increased malnutrition and starvation and even collapse. Resource squabbles and waves of food-induced migration will threaten global stability and global growth. This threat is badly underestimated by almost everybody and all institutions with the possible exception of some military establishments.

As I’ve said before on other topics: be careful out there.

So, Did You Take Care of Business?

Posted on September 24, 2012 by Thundering Heard

Preparation is everything.
–David Daniels

On June 6, we posted the following quote in What then can we do? Part 1:

Our research says that it would be wise to complete this conversion process by August 2012.

What conversion process? That of converting your paper savings primarily into minted gold and silver bullion coins. When we posted that idea on June 6, the price of gold was $1,621 per ounce. From June 6 through August 20, it meandered between $1,553 and $1,629 per ounce. Then it took off to the upside and now sits at $1,774 as I write. (At the time of posting, the price is $1,766.) If you completed the process by August 20, the dollar value of your metals holdings has increased by 9% to 14% in one to three months. If you did the entire conversion late on the last day of August, the dollar value has increased by “only” 5% in a few of weeks.

The question at the top of this post is directed to those who:

had monetary savings in electronic accounts; and
who still needed to do this conversion as of June 6.

If you have still not taken care of business in this way, we would really like to hear why. You can easily piece together our e-mail address on the Contact page. Send your reasons. What have we failed to explain with sufficient clarity?

Worthless derivatives are being created by Wall St and High St at the rate of a million dollars per second! Governments have promised citizens far more than can ever be funded. If the big banks told the truth about their financial condition, all of them would be seen as insolvent. And it has been obvious for years that most countries in the world had taken on more debt than they could ever repay, and that their only strategy would be to print money. They are doing so. With extreme prejudice! We are fairly certain that you heard that the US Federal Reserve has promised to print $40 billion per month. Ad infinitum! The week before, the European Central Bank promised to print billions as needed. The Bank of Japan joined them last week in the printing campaign. Each of the things in this paragraph would be enough to dissolve the financial system. Taken together, they are an absolute guarantee.

Your paper savings and your income are being devalued by this massive ceaseless money printing. It is an act of desperation by the central bank minions of the bankster class. Their aim is to preserve the game of the big bankers, to enable those bankers to continue their game of theft from all of us. They do not have your interests in mind. Why continue to let these thieves steal from you?

Chris Martenson of PeakProsperity.com often and elegantly describes how, once people wake up to the true nature of our current societal systems, they change their life in a big way. They can’t help it. And they do not regret the changes they make. They may lose income by leaving jobs they dislike, but they pare expenses more quickly. They might need to physically move to a new area. But they begin to enjoy life more, to find the pursuit of their new aims quite nourishing on many levels.

In these times, we contend that it is not enough to wake up only on the inside or only on the outside. We need to do both. And to live from our insights in both realms.

OK, you may have missed the opportunity to buy cheaper gold and silver through August 20. But the prices of these metals, calculated as they are in paper currencies whose quantities are being increased by the minute, will be much, much higher, and sooner than most think.

Oh, you say you prefer stocks? Here’s a chart of stock values versus gold for the last 15 years:

Two points: First, the chart shows gold outperforming stocks by about 4 to 1 over that period. Does holding stocks look like a great strategy? Second, many feel that stock indexes, calculated as they are in paper currencies that are declining in value, are approaching new all-time highs and they are smart to stick with them. If you are in that camp, here are two charts that might, that should, alarm you. It’s the path of stocks during another of the great money printing experiments in history, the Weimar Republic printing campaign in the 1920’s that resulted in an infamous hyperinflation. During that period, the value of the stock market went up when priced in the local currency that was being printed at will by the central bank. The chart looked like this:

In other words, to local people using the local currency, they felt like their money was increasing in value in stocks. The Zimbabwe stock index chart during the recent Zimbabwe hyperinflation looked even better. Stock index charts always looks like this or better when calculated in the local over-printed currency. But here’s what those Weimar stocks looked like to the rest of the world, a world that was still on the gold standard to some degree at the time:

If you think this bears some resemblance to the first chart above, the chart of US stocks priced in gold, then you are getting the picture. At the end of a hyperinflation, stocks crash mercilessly in real value as the currency loses all value. In other words, those who stay in stocks stand to lose almost all of their purchasing power! They might appear to have a lot of dollars. But those dollars will be very near worthless.

And real estate? As we’ve said before, productive real estate from which you can live independently is a great idea. All other real estate is a very bad bet from a financial point of view. Since the real estate bust began in 2006, as retorts to our advice to sell, we have been hearing: Yes, real estate has gone down, but not in my state. Which was then replaced by: Yes, real estate has gone down, but not in my area. Which has been replaced by: Yes, real estate has gone down, but not in my neighborhood. Here’s the chart of US Real Estate priced in gold going back to 1987:

If you understand this chart, you can see that US real estate is worth about half what it was worth in 1987—when priced in real money, that is, gold. At the end of the Weimar episode, it is said that you could buy an entire city block of real estate in Berlin for one ounce of gold. We are rapidly moving along that path. Since the real estate price peak, gold has outperformed real estate by about 6 to 1. And the real estate price collapse is happening while the authorities are madly printing money! If real estate were the inflation hedge that its proponents claim, real estate prices should be soaring. Alas, at least no one is claiming that such prices are soaring. But the proponents misunderstand this real estate “asset class.” Its prices are floating on a sea of debt. Once governments can no longer support that debt, prices will drop like a stone. And residential real estate was never supposed to be an “asset class.” It was supposed to be lived in!

Were the charts above prepared by some wild-eyed blogger? No, the first is from Bloomberg, the second and third were prepared by the premier hedge fund in the world, manager of well over $100 billion of client money, Bridgewater Associates. All three charts were cited here on ZeroHedge, which, in our view, is wonderfully wild-eyed. The fourth chart is from PricedInGold.com.

Our June 6 advice about completing metals purchases by August was tactical in nature: we spent years in the land of the trading thieves and one earns a knack for detecting those time-price areas where people can get lower prices. We wanted any reader who had not yet completed their buying campaign to get the benefit of lower prices.

But soon we face something that is likely to be quite different. By the second half of October, events with systemic-level impacts are likely to arise, leading to significantly greater difficulty and/or expense in the acquisition of physical metals. If we had not completed our own buying campaign quite awhile ago, we would be completing it by mid-October.

Again, from our previous posts, here is a summary of what we see coming to your current favorite planet:

Electronic accounts (bank accounts, brokerage accounts, mutual funds, etc.) are found to be empty after the implosion of the derivatives market, so there are no transactions via ATM’s, credit cards, checks, on-line payment systems, etc.
During a transitional period, people and businesses still accept national paper currencies—in hard cash form only, all electronic transactions will not be trusted—while barter, local barter currencies, and minted gold and silver coins become understood and accepted for transactions.
During that transitional period, fewer and fewer accept national paper currencies as they increasingly favor local barter currencies, gold coins, and silver coins.

Here is the most important issue: Will you be helping others during this transition? Will you be operating from a prepared, strong position? Will you be helping to re-start your local economy by spending some silver and gold? Or will you be paralyzed, floundering, panicking, regretting, in need of help, etc. The choice is straightforward.

Preparation is everything.
–David Daniels

Thundering Heard

Toward Clarity in this Time of Major Transition

Tag Archives: stock market