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Weekend Apr. 6th , 2013 |
![]() SPECIAL INTERVIEW GORDON T LONG at The FINANCIAL SURVIVAL NETWORK Tuesday 04-02-13
What Are Tipping Poinits? |
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"BEST OF THE WEEK " |
Posting Date |
Labels & Tags | TIPPING POINT or 2013 THESIS THEME |
HOTTEST TIPPING POINTS |
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MOST CRITICAL TIPPING POINT ARTICLES TODAY | |||
GOLD - The $210 Per Oz., Per $1T, of Central Bank Asset Expansion THE ONLY NUMBER YOU NEED REMEMBER > $210 Sprott: Why SocGen Is Wrong About Gold's Imminent 'Demise' 04-05-13 David Franklin and David Baker via Sprott Group, via ZH
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04-06-13 | MONETARY STUDY
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CENTRAL BANKS |
VALUATIONS - Historical Forward Operating PE Stocks Are Not Cheap 04-05-13 Morgan Stanley via ZH Normally Low Interest Rates equate to Low PE Multiples. This time it is different? |
04-06-13 | FUND-MENTALS PE |
ANALYTICS |
SENTIMENT - Over the last two years declines in bullish AAII sentiment have preceded drops in the equity market. Bullish Sentiment Drops For Third Straight Week 04-06-13 Bspoke Investment Individual investors continued to show less enthusiasm for equities this week as bullish sentiment dropped for the third week in a row. According to the American Association of Individual Investors (AAII), bullish sentiment dropped from 38.4% down to 35.5%. Since hitting a high of 52.3% in January, bullish sentiment has now dropped by 32.2%. With readings like this, it is hard to argue that investors are overly optimistic. While individual investor sentiment is often considered to be a contrary indicator for equities, over the last two years declines in bullish sentiment have preceded drops in the equity market.
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04-06-13 | SENTIMENT | ANALYTICS |
DISPOSABLE INCOME: The Death Blow to a 70 Precent Consumption Economy The 21 Key Statistics About The Explosive Growth Of Poverty In America 04-05-13 Michael Snyder of The Economic Collapse blog via ZH If the economy is getting better, then why does poverty in America continue to grow so rapidly? Yes, the stock market has been hitting all-time highs recently, but also the number of Americans living in poverty has now reached a level not seen since the 1960s. Yes, corporate profits are at levels never seen before, but so is the number of Americans on food stamps. Yes, housing prices have started to rebound a little bit (especially in wealthy areas), but there are also more than a million public school students in America that are homeless. That is the first time that has ever happened in U.S. history. So should we measure our economic progress by the false stock market bubble that has been inflated by Ben Bernanke's reckless money printing, or should we measure our economic progress by how the poor and the middle class are doing? Because if we look at how average Americans are doing these days, then there is not much to be excited about. In fact, poverty continues to experience explosive growth in the United States and the middle class continues to shrink. Sadly, the truth is that things are not getting better for most Americans. With each passing year the level of economic suffering in this country continues to go up, and we haven't even reached the next major wave of the economic collapse yet. When that strikes, the level of economic pain in this nation is going to be off the charts. The following are 21 statistics about the explosive growth of poverty in America that everyone should know... 1 - According to the U.S. Census Bureau, approximately one out of every six Americans is now living in poverty. The number of Americans living in poverty is now at a level not seen since the 1960s. 2 - When you add in the number of low income Americans it is even more sobering. According to the U.S. Census Bureau, more than 146 million Americans are either "poor" or "low income". 3 - Today, approximately 20 percent of all children in the United States are living in poverty. Incredibly, a higher percentage of children is living in poverty in America today than was the case back in 1975. 4 - It may be hard to believe, but approximately 57 percent of all children in the United States are currently living in homes that are either considered to be either "low income" or impoverished. 5 - Poverty is the worst in our inner cities. At this point, 29.2 percent of all African-American households with children are dealing with food insecurity. 6 - According to a recently released report, 60 percent of all children in the city of Detroit are living in poverty. 7 - The number of children living on $2.00 a day or less in the United States has grown to 2.8 million. That number has increased by 130 percent since 1996. 8 - For the first time ever, more than a million public school students in the United States are homeless. That number has risen by 57 percent since the 2006-2007 school year. 9 - Family homelessness in the Washington D.C. region (one of the wealthiest regions in the entire country) has risen 23 percent since the last recession began. 10 - One university study estimates that child poverty costs the U.S. economy 500 billion dollars each year. 11 - At this point, approximately one out of every three children in the U.S. lives in a home without a father. 12 - Families that have a head of household under the age of 30 have a poverty rate of 37 percent. 13 - Today, there are approximately 20.2 million Americans that spend more than half of their incomes on housing. That represents a 46 percent increase from 2001. 14 - About 40 percent of all unemployed workers in America have been out of work for at least half a year. 15 - At this point, one out of every four American workers has a job that pays $10 an hour or less. 16 - There has been an explosion in the number of "working poor" Americans in recent years. Today, about one out of every four workers in the United States brings home wages that are at or below the poverty level. 17 - Right now, more than 100 million Americans are enrolled in at least one welfare program run by the federal government. And that does not even include Social Security or Medicare. 18 - An all-time record 47.79 million Americans are now on food stamps. Back when Barack Obama first took office, that number was only sitting at about 32 million. 19 - The number of Americans on food stamps now exceeds the entire population of Spain. 20 - According to one calculation, the number of Americans on food stamps now exceeds the combined populations of "Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming." 21 - Back in the 1970s, about one out of every 50 Americans was on food stamps. Today, close to one out of every six Americans is on food stamps. Even more shocking is the fact that more than one out of every four children in the United States is enrolled in the food stamp program. Unfortunately, all of these problems are a result of our long-term economic decline. In a recent article for the New York Times, David Stockman, the former director of the Office of Management and Budget under President Ronald Reagan, did a brilliant job of describing how things have degenerated over the last decade...
For the last couple of years, the U.S. economy has experienced a bubble of false hope that has been produced by unprecedented amounts of government debt and unprecedented money printing by the Federal Reserve. Unfortunately, that bubble of false hope is not going to last much longer. In fact, we are already seeing signs that it is getting ready to burst. For example, initial claims for unemployment benefits shot up to 385,000 for the week ending March 30th. That is perilously close to the 400,000 "danger level" that I keep warning about. Once we cross the 400,000 level and stay there, it will be time to go into crisis mode. In the years ahead, it is going to become increasingly difficult to find a job. Just the other day I saw an article about an advertisement for a recent job opening at a McDonald's in Massachusetts that required applicants to have "one to two years experience and a bachelor's degree". If you need a bachelor's degree for a job at McDonald's, then what in the world are blue collar workers going to do when the competition for jobs becomes really intense once the economy experiences another major downturn? Do not be fooled by the fact that the Dow has been setting new all-time highs. The truth is that we are in the midst of a long-term economic decline, and things are going to get a lot worse. If you know someone that is not convinced of this yet, just share the following article with them: "Show This To Anyone That Believes That 'Things Are Getting Better' In America". |
04-06-13 | INDICATORS CATALYST DI | |
FOOD STAMPS - 15 Percent, 47.3M or 1 in 7 Americans on SNAP Some 15% of U.S. Receives Food Stamps 04-05-13 WSJ
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04-06-13 | INDICATORS CATALYST DI | MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Mar. 31st - Apr 6th 2013 |
RISK REVERSAL | 1 | ||
JAPAN - DEBT DEFLATION | 2 | ||
JAPAN - Did They Just Lose Control Of Rates?? Is It Beginning? Biggest JGB Price Collapse In Over 10 Years Triggers TSE Circuit Breakers 04-05-13 Zero Hedge Just over 4 hours ago we discussed the stunning collapse in 10Y Japanese bond yields. Since then - things have taken a very dramatic turn for the worse for bonds. 10Y JGB yields have exploded higher. The move from 32bps to 65bps triggered circuit breakers on the Tokyo Stock Exchange in JGB Futures trading as JGB prices plunged by their largest amount since September 2002. We can only imagine there is liquidations galore occurring given the massive outsize moves we are seeing in Japanese bonds, stocks, FX, swaps, and CDS. Did the BoJ just lose control? Now that is a reversal!! Biggest price drop in JGB Futures in over 10 years. |
04-05-13 | JAPAN | 2 - Japan Debt Deflation Spiral |
JAPAN - They Will Lose Control of Rates Due to Insolvency Kyle Bass: "Japan Will Implode Under Weight Of Their Debt" 04-04-13 CNBC via ZH "they will lose control of rates, since leaving the zone of insolvency is impossible now" As the fast-money flabber-mouths stare admiringly at the rise in nominal prices of Japanese (and the rest of the world ex-China) stock prices amid soaring sales of wheelbarrows following Kuroda's 'shock-and-awe' last night, it is Kyle Bass who brings these surrealists back to earth with some cold-hard-facting. Out of the gate Bass explains the massive significance of what the Japanese are embarking on, "they are essentially doubling the monetary base by the end of 2104." It is a "Giant Experiment," he warns, but when you are backed into a corner and your debts are north of 20 times your government tax revenue, "you're already insolvent." Simply put, Bass says they have to do something and they have to something big because they are "about to implode under the weight of their debt." For a sense of the scale of the BoJ's 'experimentation', Bass sums it up perfectly (and concerningly), "the BoJ is monetizing at a rate around 75% of the Fed on an economy that is one-third the size of the US!" What they are trying to do is devalue the currency to attempt to become more competitive while holding their rates market flat - the economic zealots running the world's central banks believe they can live in that Nirvana - and Bass believes that is not the case, as they will lose control of rates, since leaving the zone of insolvency is impossible now. His advice, "if you're Japanese, spend! or take it out of your country. If you're not, borrow in JPY and invest in productive assets." Do not be long JPY or Japanese assets as he concludes with the reality of Japan's "hollowed out" manufacturing industry and why USDJPY is less important that KRWJPY.
WHAT YOU NEED TO KNOW
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04-05-13 | JAPAN | 2 - Japan Debt Deflation Spiral |
JAPAN - Understanding the Japanese Problem in Less than 7 minutes Japan's Debt Crisis Visualized 04-04-13 Addogram via ZH In just a few short minutes, inspired by Kyle Bass, Addogram presents a short visual explanation of Japan's debt problem. In the time it takes Ben Bernanke to print $13.7 million you'll have a deep understanding of Aso, Abe, and Kuroda's impending debt crisis.
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04-05-13 | JAPAN | 2 - Japan Debt Deflation Spiral |
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04-04-13 | JAPAN MONETARY |
2 - Japan Debt Deflation Spiral |
BANK OF JAPAN - ABE-Nomics Roll-Out -1 Japan's Great Economic Experiment Starts In Just A Few Hours — Here's What You Need To Know 04-03-13 BI BANK OF JAPN - Board Meeting 04-04-13 This is it – the moment the Abenomics-watchers have been waiting for.
Wednesday night, the Bank of Japan will conclude its first monetary policy meeting with new BoJ Governor Haruhiko Kuroda at the helm. So far, Japan's great "Abenomics" experiment – which seeks to employ bold policy tools to overcome more than a decade of deflation – has been mostly talk. Now, the rubber meets the road for Kuroda, the monetary policy dove selected by recently-elected Japanese Prime Minister Shinzo Abe to lead the charge from the BoJ, which has to do a lot of the heavy lifting. There are a few things everyone is looking for, according to analysts at Morgan Stanley, BofA Merrill Lynch, and Deutsche Bank –
Below is what BAML analysts Shogo Fujita, Masayuki Kichikawa and Shuichi Ohsaki predict for Kuroda's meeting.
Deutsche Bank analyst Makoto Yamashita says the market will "hinge on the details" of the meeting. "We expect BoJ Governor Haruhiko Kuroda to emphasize a regime shift at the Bank, which is likely to become a catalyst for yen depreciation and a rise in stocks," says Yamashita. That would be welcome news for investors betting against the yen, which is expected to continue falling as a result of Abenomics policy initiatives, but has found a bit of support in recent weeks, effectively stalling one of the most popular currency trades in the world. However, most agree that the market is already expecting so much of Kuroda and the BoJ that the outcome of this press conference has probably already been discounted. "The market is already positioned for boldness, with the largest speculative short JPY position since the heyday of the yen-funded carry trade in mid-2007, according to CFTC data," says Société Générale analyst Alvin Tan. "We remain on the sidelines in JPY for the short-term." Deutsche Bank strategist Taisuke Tanaka agrees. "The markets have largely discounted these possibilities," Tanaka writes in a note to clients today. "Thus, we believe the new regime's decision will not spark a second 'Abe market' (i.e., a repeat of the market upsurge following the election victory of Prime Minister Shinzo Abe) and may disappoint markets." On the other hand, Citi strategist Steven Englander says the BoJ has a strong incentive to surprise markets today, given the correlation breakdown between Japanese stocks and the S&P 500. According to Bloomberg, Kuroda may hold a press conference Thursday at 2:30 AM ET following the conclusion of the central bank's meeting on monetary policy. |
04-04-13 | JAPAN MONETARY |
2 - Japan Debt Deflation Spiral |
BOND BUBBLE | 3 | ||
EU BANKING CRISIS |
4 |
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EU - Policy Shift Threatens the View of Bank Deposits Bail-In Blues: Luxembourg Warns of Investor Flight from Europe 03-29-13 der Spiegel The debate over this week's "bail in" of bank account holders in Cyprus as part of the country's debt crisis bailout is continuing to simmer in Europe. In Luxembourg, Finance Minister Luc Frieden has warned that the example set in Cyprus by taxing people holding €100,000 ($129,000) or more in their accounts could drive investors out of Europe. "This will lead to a situation in which investors invest their money outside the euro zone," he told SPIEGEL. "In this difficult situation, we need to avoid anything that will lead to instability and destroy the trust of savers."
Earlier this week, Euro Group President Jeroen Dijsselbloem sparked an enormous controversy after stating that the solution found in Cyprus could be applied throughout the euro zone in the future. The remark triggered immediate criticism from his predecessor as head of the Euro Group, Luxembourg Prime Minister Jean-Claude Juncker. "It disturbs me when the way in which they tried to resolve the Cyprus problem is held up as a blueprint for future rescue plans," Juncker told German public broadcaster ZDF earlier this week. "It's no blueprint. We should not give the impression that future savings deposits in Europe might not be secure. We should not give the impression that investors should not keep their money in Europe. This harms Europe's entire financial center." But in the European Parliament, politicians are considering ways to make banks bear greater responsibility for their own financial problems. Lawmakers are considering the European Commission's proposed banking resolution legislation for faltering financial institutions. The discussion includes the possibility of future compulsory levies on major depositors, although it is more focused on placing greater responsibility for risks on other investors in banks. "We want to clearly strengthen the position of deposit customers," said Swedish European Parliament member Gunnar Hökmark. Under the proposal, deposits of up to €100,000 would be excluded from any loss participation at a bank. Any deposits over that amount would only get hit if the losses couldn't be fully covered through a bank's shareholders and other creditors. 'Societal and Political Acceptance Is Ending' The EU currently guarantees all deposits under €100,000, but this policy was called into question two weeks ago after the finance ministers of the euro zone decided to make small-scale savers contribute to the bailout of the Cypriot banking sector. Ultimately, Cyprus issued a one-time levy only against depositors with €100,000 or more in their accounts, the first time that personal bank accounts have been hit in Europe as part of a formal bailout package. Under current EU policy, private creditors will not be required to cover banking imbalances until 2018. But in Germany, Andreas Dombret, a board member of the Bundesbank, the country's central bank, would like to implement the new rules much sooner, by 2015. And Carsten Schneider, the budget policy expert for the opposition center-left Social Democrats, says he believes the rules for winding down banks should be implemented as soon as 2014. "Societal and political acceptance is ending for the model of bank rescues in which the state protects bond holders and major investors," said Schneider. dsl/SPIEGEL |
04-01-13 | EU MONETARY |
4- EU Banking Crisis |
THE CYPRUS IMPACT - Crumbling EU Foundation Principles The Seven Broken Taboos Of The Cyprus Deal 03-31-13 Barclays via ZH The euro’s core founding principles, based on the Maastricht Treaty’s:
According to Barclays: From a European perspective, the list of broken taboos and assumptions continues to grow. It includes:
The euro will never be the same again; its preservation now depends urgently upon economic recovery. Without the delivery of economic growth, unemployment will rise to yet higher post-war record levels, and the widespread and growing disillusionment felt by EU citizens towards their economic regime will threaten to spill over into more explicit questioning of the euro’s suitability. |
04-01-13 | EU | 4- EU Banking Crisis |
SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] | 5 | ||
CHINA BUBBLE | 6 | ||
GLOBAL GROWTH - Slowdown Starting to Accelerate Global Economic Slowdown Accelerates Again 04-01-13 Goldman Sachs via ZH It would appear that between the historical revisions of over-optimistic initial prints in macro data in the last few months and the reality of the weakness in Europe; the global economy is in Slowdown. Goldman's Swirlogram has now seen its Global Leading Indicator in the 'slowdown' phase for two months as momentum fades rapidly and seven of the ten major factors in the index declining with Global (Aggregate) PMI, and Global New Orders-less-Inventories worsening. Quite comically, the three factors providing some positivity are the Baltic Dry Index (which we are told is irrelevant when it drops), Japanese Inventory/Sales (which improved but remains at depression-era levels), and US initial jobless claims (which have become a farce statistically from what we can tell). Of course, none of this macro reality matters for now - until it does that is. The red arrows show the relative size of adjustments from the initial estimates... and the last 3 days have seen the biggest drop in US macro data in 9 months... Charts: Bloomberg and Goldman Sachs |
04-02-13 | GLOBAL INDICATORS CYCLE GROWTH |
11 - Shrinking Revenue Growth Rate |
EU - The "CORE" Problem Europe Back To 19th Century Growth Rates 04-01-13 JP Morgan via ZH Long-term growth conditions in Spain, Italy and France are as weak as they have been (other than during wartime) in over a century. The chart below tells the story. As JPMorgan's Michael Cembalest notes, while European sovereign debt spreads have rallied across the board, European bank lending to households and businesses is still declining, and the cost of small business loans in Italy and Spain is higher than both real and nominal growth. With ECB policy now clearly useless given Europe's fragmentation, and with Germany's forward expectations rolling over, it is hard to see how, absent wholesale devaluation and/or inflation (or as Cembalest notes destruction & rebuilding), E
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04-02-13 | EU INDICATORS CYCLE GROWTH |
11 - Shrinking Revenue Growth Rate |
SENTIMENT - Small Investors Edging Into Market Afraid to Miss Rally Mom and Pop Run With the Bulls 03-29-13 WSJ The market's record-breaking spree has raised a new fear in many American households—dread that they are missing out on big gains. When stock prices collapsed in 2008, the bear market wiped out half of the savings of Lucie White and her husband, both doctors in Houston. Feeling "sucker punched," she says, they swore off stocks and put their remaining money in a bank. This week, as the Dow Jones Industrial Average and Standard & Poor's 500-stock index pushed to record highs, Ms. White and her husband hired a financial adviser and took the plunge back into the market. "What really tipped our hand was to see our cash not doing anything while the S&P was going up," says Ms. White, a 39-year-old dermatologist in Houston. "We just didn't want to be left on the sidelines."
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04-02-13- | SENTIMENT | 22 - Public Sentiment & Confidence |
TO TOP | |||
MACRO News Items of Importance - This Week | |||
GLOBAL MACRO REPORTS & ANALYSIS |
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US ECONOMIC REPORTS & ANALYSIS |
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES | |||
Market Analytics | |||
TECHNICALS & MARKET ANALYTICS |
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FED MODEL - No Longer Prices Risk The Fallacy Of The Fed Model 04-04-13 Lance Roberts of Street Talk Live blog via ZH On April Fool's Day Martin Hutchinson released an article entitle "This Little-Known Indicator Says Stocks Should Double." stating:
Now, before you assume that I am attacking Mr. Hutchinson's view point, I want to clarify that even he suggests that "...the Fed Model is only right by accident. However, lots of people follow it..." This is the primary point that I want to address which is the fallacy of the Fed Model. While there are certainly reasons to be bullish about the financial markets currently, as their hover near historic highs, one of the simplest, most overused and popular assertions is that claim that stocks must rise because interest rates are so low. In fact, you cannot get through an hour of financial television without hearing someone discuss the premise of the Fed Model which is earnings yield versus bond yields. The idea here, once formalized as the "Fed Model," is that stocks' "earnings yield" (reported or forecast operating earnings for the S&P 500, divided by the index level) should tend to track the Treasury yield in some fashion. This simply doesn't hold up in theory or practice. First, the Federal Reserve has been on an unprecedented mission to support the financial markets and the economy through outright manipulation of interest rates. The artificial suppression of interest rates through various interventions, such as Quantitative Easing, has distorted what bond yields would be in a more normal operating environment. Therefore, the yields do not reflect the inherent risk being undertaken by investors in terms of duration, credit or repayment. The Fed's goal of suppressing interest rates was to ultimately boost employment and asset prices to spur economic growth. However, the problem for the Fed has been a failed transmission system which has left the "wealth effect" trapped at the upper end of the economic spectrum and has failed to do much more than keep the economy from slipping into a prolonged recession. Therefore, with the yield curve artificially steep the effectiveness of the yield curve's recession predicting capability may be somewhat suspect this time around. This is something I can't prove at the moment - but I do think that time will tell that this time "may indeed be different." However, the reason I state this is that if we extract the influence of trillions of dollars of Federal stimulus though both the government (TARP, HAMP, HARP, etc.) and the Federal Reserve - the yield curve would likely look far different than it does today. This brings us to profits and equity yields. Corporate profits surged since the depths of the financial crisis. However, as I discussed in our recent post on "The Great Disconnect: Market Vs. Economy":
As the Fed's suppression of interest rates - given a more normal operating environment earnings yields would likely be less than they are today. The deflationary pressures on wages due to an excessively large labor pool, combined with accounting manipulation and record stock buybacks to boost earnings per share, have inflated the earnings yield to historically high levels. However, it is also within the context of these "record profits" that a warning bell should be sounding as "records" by any measure are usually more representative of a peak within the current trend rather than the start of one. The Fed Model Is Broken This bring us to the widely followed, overly espoused and internally flawed "Fed Model." The Fed Model basically states that when the earnings yield on stocks (earnings divided by price) is higher than the Treasury yield; you should be invested in stocks and vice-versa. That makes sense - until you actually think about it. The problem here is twofold. First, you receive actual income from owning a Treasury bond, along with a return of principal function, whereas there is no tangible return from an earnings yield on stocks. Therefore, if I own a Treasury with a 5% yield and a stock with a 8% earnings yield, if the price of both assets do not move for one year - my net return on bond is 5% and on the stock it is 0%. Which one had the better return? This has been especially true over the last decade where stock performance has been significantly trounced by simply owning cash and bonds rather than equities. Yet, analysts keep trotting out this broken model to entice investors to chase the single worst performing asset class over the last decade. It hasn't been just the last decade either with which the "Fed Model" has continually misled investors. An analysis of the previous history of the concept shows it to be a very flawed concept and one that should be sent out to pasture sooner rather than later. During the 50's and 60's the model actually worked pretty well as economic growth was strengthening. Interest rates steadily rose as a stronger economic growth allowed for higher rates which enticed higher personal savings rates. These higher savings rates were lent out by banks into projects that continued further stimulated economic growth. However, as I have discussed in the past in "The End Of Keynesian Economics" as the expansion of debt, the shift to a financial and service economy and the decline in savings began to deteriorate economic growth the model no longer functioned. During the biggest bull market in the history of the United States you would have sat idly by in treasuries and watched stock skyrocket higher. However, not to despair, the Fed Model did turn in 2003 and signaled a move from bonds back into stocks. Unfortunately, the model also got you out just after you lost a large chunk of your principal after the crash of the markets in 2008. Currently, you are back in again after missing most of the run up in the current bull cycle only most likely to be left with the four "B's" after the next recession ends - Beaten, Battered, Bruised and Broke. The bottom line here is that earnings yields, P/E ratios, and other valuation measures are important things to consider when making any investment but they are horrible timing indicators. As a long term, fundamental value investor, these are the things I look for when trying to determine "WHAT" to buy. However, understanding market cycles, risk / reward measurements and investor psychology is crucial in determining "WHEN" to make an investment. In other words, I can buy fundamentally cheap stock all day long; however, if I am buying at the top of a market cycle then I will still lose money. As with anything in life - half of the key to long term success is timing. Right now, with virtually all of the economic indicators weakening, rising geopolitical tensions, continued concerns from an ongoing recessionary environment in the Eurozone, valuations anything but cheap currently and an extremely overbought and extended market technically - timing right now could not be worse for long term investors to "jump in". Could stocks double from here? Anything is possible, however, for investors the reality is that the current financial and economic environment is not extremely healthy because if it were the Fed would not need to be engaged in two simultaneous liquidity programs to keep it afloat. Without such support from the Fed, as we have seen after the conclusion of the previous Q.E. programs, the markets, and the economy, would quickly begin to contract. It's time for the "Fed Model" to go the way of the "dodo." Of course, much like the "Mirror On The Wall" as long as it tells us that we are the "fairest of them all" what could possibly go wrong? |
04-05-13 | STUDY US MONETARY |
CENTRAL BANKS |
RISK - Quickly Escalating Risk Three Bearish Charts for Equities 03-29-13 Stone Street Advisors ECONOMIC RISK Economic risk: SPX has lined up very well initial jobless claims for the past 5+ years but has recently overshot by quite a bit. SPX versus INITIAL JOBS CLAIMS "HIGH QUALITY" RISK High quality risk: the BAML Global Financial Stress Index, which attempts to measure stress in areas such as solvency and liquidity, price momentum, and short term volatility. This is the first time it has broken significantly below equities in over two years. SPX versus GLOBAL FINANCIAL STRESS INDEX "LOW QUALITY" RISK the Markit CDX North America High Yield Index tracks CDS for 100 non investment grade debt issuers. This has been an extremely tight relationship. SPX versus Markit CDX North America High Yield Index (100 non investment grade debt issuers)
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04-04-13 | RISK | ANALYTICS |
SENTIMENT - Rising Cash Allocations AAII: Cash Allocations at a 16-Month High 04-03-13 Berry Ritholtz Today, lets look at another interesting data point from AAII: Cash allocations reached a 16-month high in March. Individual investors pulled money from both equities and bonds last month. We have shown the flip side of this chart in the past — equity allocation — which is similarly moderate. Equity allocations fell 3.0 percentage points to 59.5% in March. Surprisingly, the past 15 months have not seen much variation in equity allocations stuck in a range from 58.8% (June 2012) to 62.5% (February 2013). The historical average is 60%. March AAII Asset Allocation Survey results:
Historical Averages:
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04-04-13 | SENTIMENT | ANALYTICS |
EARNINGS - Elevated Negative Pre-Announcements You Know The Market's Euphoric When... 04-02-13 Zero Hedge We noted last night the 'six charts' that represent the sum total of the hopefulness of these markets with relation to fundamental earnings but it is the ratio of negative to positive earnings guidance - which stands at a record high - that should worry investors the most (and doesn't). As the WSJ notes, in the last bull market, the negative corporate guidance ratio hit a peak of 2.38 in the third quarter of 2007 - just as that bull market was ending (and troughed at 0.97 right as the bottom was in in stocks in Q1 2009). The current 3.55 ratio is the highest on record. But what is more representative of the market's absolutely sanguine nature is that just 2 days after guiding earnings down, stock prices are down just 0.3% (and half the stocks actually rose). As the WSJ concludes, and we tend to agree, watch out. There may be a nasty drop on the other side of this wall. |
04-03-13 | PATTERNS | ANALYTICS |
EARNINGS - Investors Ignore Negative Pre-Announcements Investors Ignore Negativity at Their Peril 04-01-13 WSJ As the first quarter drew to a close, 86 companies in the S&P 500 issued negative guidance for what they expect to report in earnings for that period. Just 24 issued positive guidance. At 3.58 negative updates for every positive one, that is by far the highest ratio since FactSet began tracking such data in 2006. A look at consensus earnings-per-share expectations for the companies with the 10 highest weightings in the S&P 500—making up close to a fifth of the total—shows a similar pattern. Relative to where forecasts stood at the start of the year, they have fallen for seven and risen for three. Ignore corporate worrywarts at your peril. In the last bull market, the negative corporate guidance ratio hit a peak of 2.38 in the third quarter of 2007—just as that bull market was ending. Meanwhile, one of the lowest ratios of negative guidance, 0.97, came during the second quarter of 2009, when many analysts and investors still were very pessimistic and stocks hit a 13-year low. Investors' reaction to recent guidance shows they may be too sanguine. FactSet notes that the average stock-price change from two days before to two days after the announcement of negative guidance has been a drop of just 0.3% this quarter. About half of the stocks involved actually rose. Conversely, companies issuing positive guidance had larger-than-typical gains on average, although this figure was pulled higher by Netflix, which rallied by two-thirds
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04-03-13 | PATTERNS | ANALYTICS |
TOTAL RETURNS - US & Japan the Only Positives Best And Worst Performing Assets In 2013 04-03-13 Deutsche Bank via ZH A rather skewed distribution in asset returns Year to Date (through March 31), with the winners so far i) the Nikkei, in both JPY and USD terms, on endless jawboning out of the Japanese political apparatus that it may do virtually anything - although in a few hours we will see just what the BOJ actually will do, the S&P on the $85 billion in monthly liquidity injections, and finally the FTSE on expectations the arrival of yet another Goldman central planner will unleash yet another epic episode of monetization in July, just as the Japan effect is fading. The losers: pretty much everyone else. (BitCoin was not included in the sample). |
04-03-13 | PATTERNS | ANALYTICS |
ANALYTICS - Weakness Below the Headline Numbers Underneath The Surface, People Are Seeing Signs That The Stock Market Is Breaking Down 04-03-13 BI Miller Tabak Chief Technical Market Analyst Jonathan Krinsky says "the cracks in the market appear to be growing, with the small-caps and transports severely underperforming." Doug Kass says the same thing today, pointing to "subsurface weakness" in the market. Here are a few points Kass highlights in his note:
"It is an unusual market feature when defensive stocks are among the leading groups in a market moving to new highs," says Kass. On the other hand, Phoenix Partners Group Chief Equities Strategist Michael Block doesn't think these signals are necessarily anything to worry about. "As for the argument that defensives have led, my advice is to think about what quant factors might be leading those stocks higher here," says Block. "There are style, size, and fundamental factors there that are likely the cause... and it has nothing to do with them being hiding places." Block points out that Russell 2000 outperformance is still trending up despite recent weakness, and that he considers these technical factors "an early warning sign and nothing to jump in against with both feet." |
04-03-13 | ANALYTICS RISK |
ANALYTICS |
ANALYTICS - Weakness Below the Headline Numbers - 2 There's A Rotation Underway Out Of Small-Cap Stocks That Could Be Bad News For Everyone 04-01-13 BI Small-cap stocks have been lagging the market recently. Miller Tabak's Jonathan Krinsky brings this to clients' attention today, writing, "Generally, when the small-caps show relative weakness vs. the large caps, it is a sign that investors are moving out of the riskier/high-beta names and into the 'relative safety' of the large/mega-caps." Perhaps the best way to see this rotation out of small-caps and into large-caps is by charting the ratio of the Russell 2000 (a small-cap index) to the Dow Jones Industrial Average (an index of large-caps). When the ratio goes down, investors are moving into bigger, safer names. That's what is happening right now. Krinsky points out that this ratio peaked in February 2012, before the S&P 500 ultimately peaked in early April, as shown by the arrows in the chart below.
The chart also shows that the Russell 2000/DJIA ratio has peaked again and appears to be headed lower. "This is by no means a guarantee of a market top of course," says Krinsky. "We saw this ratio plunge from July to August 2012, even as the S&P grinded higher." This time, it might be saying something prescient, though, given the fact that the market rally hasn't really faced a major test yet. "When put in context, however, and combined with many of the other factors we have been highlighting, it should certainly be given some consideration," says Krinsky. |
04-03-13 | ANALYTICS RISK |
ANALYTICS |
SENTIMENT - Contrarian Indicator Suggests Upside Potential Sell Side Consensus Indicator Still Extremely Bearish 04-01-13 Barry Ritholtz |
04-03-13 | SENTIMENT | ANALYTICS |
CANARIES - Rosenberg Sees Signs of Overbought Market ROSENBERG: I See 10 Signs That Show The Stock Market Is Overbought 04-01-13 Gluskin Sheff's David Rosenberg via BI In a new note, Gluskin Sheff's David Rosenberg that it is "exciting" to see the S&P 500 hit an all-time high, but that "beneath the veneer, some signs of 'nonratification' or at least 'overbought' readings are starting to take hold." He offers 10 reasons:
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04-03-13 | RISK | ANALYTICS |
CANARIES - Market Risk Ten Things That Could Wreck the Bull Market 03-30-13 247WallStreet.co, The markets closed out the first quarter of 2013 with a big rally and the bulls seem to remain in charge. The Dow Jones Industrial Average (DJIA) is up more than 11% and the S&P 500 is up 10% so far in 2013, and they are both at all-time closing highs. We recently gave our synopsis showing the road map for the bull market to continue in April, but we also want to be open to the obvious and less obvious risks. Unfortunately for the market bulls, there are two sides to a coin. 24/7 Wall St. wants to cover the other side of the bull market coin. The saying goes, “Bull markets often crawl up a wall of worry.” Here are 10 serious considerations that those of us who remain bullish on stocks need to keep in the back of our minds. We have looked at the year-to-date changes for much of the analysis, and historical data or color has been added elsewhere. 1. The Ticker Tape and Market Internals: For starters, when markets hit all-time highs, the ticker tape and market internals come into focus. The S&P 500 took more than two weeks of challenging the all-time high before closing above it, even though the DJIA already had broken out. In fact, it looks like the S&P was within 10 points of the all-time closing high for almost three weeks before punching through. Some may question that the ticker tape is not as strong as you might expect. DJIA stocks are up year-to-date by a ratio of 14:1, but the S&P ratio is close to 7:1 year-to-date. Capital inflows into stocks have been monumental, but they seem to have slowed. Even with the normal bump at the end of a month and start of a month from 401K monies, what if that starts to peter out? It takes money to make money, and it actually does require inflows to keep driving up stock prices. What if the “sell in May and go away” theme comes early this year? 2. The European Follies: That darned European situation just refuses to go away. First it was all the woes of the PIIGS (Portugal, Italy, Ireland, Greece, Spain). But in 2013 suddenly Cyprus matters. This inconsequential island nation is just not very relative. Outside of being an offshore banking mecca and a tourist destination, and having a British naval base, this nation should have no importance at all. Unfortunately, that is now the world we live in. Imagine if Spain, Italy, Portugal or Greece were suddenly back in the soup. They at least matter compared to Cyprus. A Dow Jones headline caught our attention: Greek Retail Sales Plunge 15.7% as Country Enters Sixth Year of Recession. Any new spike higher in interest rates around the PIIGS, or any other unwelcome growing anti-austerity measures, could tip Europe again. If Europe unexpectedly gets far worse again all of a sudden, kiss our great U.S. bull market bye-bye. 3. Employment and Economic Reversals: What if the employment data really does get wrecked by the spending sequestration? This is a low probability because sequestration was really just cutting the growth of spending rather than cutting actual spending. But what if employment just reverses again? The validity of the 7.7% unemployment rate from February can be debated, but that was still the best reading in four years. What if companies just start laying workers off or have furloughs for, say, the entire slow summer period? It seems unlikely, but it is possible. The equity markets would not respond positively if the official unemployment rate gets back up around 8%. 4. QE-Exhaustion: Ben Bernanke and friends are printing up more money than you can fathom. The bond buying alone is $85 billion or so per month in the United States. Throw in whatever the Japanese are doing now to end their two-decade period of no inflation and no growth. What if the funny-money stimulus measures start to end or taper off? This is not expected, but you cannot imagine that the central bankers really will live up to their promise of signaling when the end or tapering will come about. Bernanke likely will not say, “Soon, soon, getting closer, getting much closer, almost there, really almost there, OK NOW!” The market has many theories about how global quantitative easing will end. No one really knows, but if not handled properly it could be shocking. 5. International Bad Boys: The United States and the developed world have two serious bona fide financial enemies. A nuclear Iran is something that no one wants. What happens when the world wakes up to the headline “Iran Successfully Tests First Nuclear Bomb” one day? Then there is North Korea. The new leader, Kim Jong Un, has just stepped up his saber-rattling with more nuclear threats. They cannot afford to give their citizens enough food, but they can still threaten to use their nukes. Iran and North Korea remain risks, and they are likely secular risks. And what about America’s other nemesis? Al Qaeda and other offshoot terrorist groups are still a threat. We will no given them any ideas to consider, but neither will we ever forget them as a risk. 6. Bank and Financial Regulation: Investors still want to talk up bank stocks. Meredith Whitney says Bank of America Corp. (NYSE: BAC) will hit $15 and Dick Bove says it will hit $30. But what about the Dodd-Frank implementation and the Volcker Rule? What if the banks really do have to stop trading in the financial markets? There are trillions upon trillions of dollars of over-the-counter derivatives still outstanding that would have to be unwound. Maybe the regulation is more ruse and threat than real, but this remains a risk. Congressman Peter Defazio is out with yet another trading tax as well. What if that socialist effort takes on more steam this time around because Defazio became less stupid by proposing a watered down tax effort this time? It seems unlikely, but that is another risk to the banks. 7. Earnings Season: What if earnings season starts out poorly? Alcoa Inc. (NYSE: AA) kicks off earnings season, and it may be very short of “with a bang” this April. Alcoa is down 1.5% so far in 2013, while the S&P 500 is up 10%. How great are its earnings expected to be? Many other companies may report what are very choppy earnings in the first quarter. All of those preparations for the fiscal cliff had some lingering effect in the business world, even if the stock market discounted it. Then there was sequestration of the federal budget, which may still have some impact even if it is the cutting of spending growth versus actual spending cuts. See below about the dollar, but currencies could alter guidance negatively as well. Many companies could have very choppy earnings. Oracle Corp. (NASDAQ: ORCL) was a disappointment that the market was not braced for. What if there are more of the major DJIA and S&P 500 stocks that have unexpected negative news lurking? 8. King Dollar: U.S. companies hate when the U.S. dollar strengthens too much. Japan decided that Johannes Gutenberg’s Bible-printing efforts could be applied to the yen. The demise of the yen has taken it from about 78 yen/dollar in October up to 96 before settling in at about 94 for the end of March. The Europeans just cannot keep things marching smoothly for more than a month or two at a time it seems. In January the euro rose to above $1.36, but now it is closer to $1.28, and the chart still points as though $1.25 or even $1.20 are possible. A strong dollar hurts American companies wanting to export goods and services because it makes our goods more expensive. That ties into earnings above, but watch for companies to start complaining about currency again. 9. Buzzkill of Apple and Facebook: Apple Inc. (NASDAQ: AAPL) has gone from the darling of Wall St. to the ugliest pig in a prom dress. After the monumental rise that led it to be the largest company by market cap, Apple is now down 37% from its peak and is about 16% lower year-to-date. The Facebook Inc. (NASDAQ: FB) IPO also was a total disaster, and the stock is down 45% from the peak of the IPO. After an initial trick into thinking that Facebook’s stock was back, its guile and charm quickly turned into deceit. Facebook shares are down more than 21% from the highs in January, and the stock’s recent weakness has it close to a 2013 low, and shares are now down almost 4% so far this year. Both of these investments could keep pushing the so-called millennials even further away from ever wanting to buy stocks. These may seem like outliers, but psychological damage can take many years to recover from. 10. The Wild Card(s): The last thing that can come up and wreck the great bull market is simply the unknown. We have argued for quite some time now that the markets have lost their ability to predict and price in events. So whatever the next trouble is, the market may not even know about it. Financier and billionaire George Soros once wrote, “Contrary to the tenets of market fundamentalism, financial markets do not tend towards equilibrium; they are crisis prone.” OK, so now you have 10 real-life issues or risks that are threats to the bull market to consider. The charts are signaling that the bull market likely is not dead. The fundamentals look better than they did a quarter ago as well. But history has taught us over and over that the tide can change suddenly. There are probably 20 other serious risks that investors have to consider on top of this. We just wanted to offer some of our top concerns as you try to navigate the current bull market. There are two sides to a coin, and we wouldn’t want you thinking we only have pom-poms for cheering those bulls three months before the festival in Pamplona begins. |
PATTERNS | ANALYTICS |
ANALYTICS |
PATTERNS - Long Cycles Long Cycles 04-02-13 Ed Carlson via Safehaven Chances are you have seen a long-term chart of the Dow annotated as the chart below has been. The red hash marks designate secular bull and bear markets. But if you look closely, you may notice one significant difference from similar charts; the first secular market begins in 1921 and not in 1932 as is often shown. Why the low in 1921? Why is the secondary low of March 2003 used and not the nominal low in October 2002? The dates shown on this chart are the lows of, what George Lindsay called, the Long Cycle and were found using very specific, rules-based methods devised by him. These rules are explained in the book An Aid to Timing. I recently took a moment to count the exact length of these long-cycles. Although Lindsay devised these methods using data he had collected back to 1798, he wrote the original An Aid to Timing in 1950 so he wasn't able to do perform this exercise for our "modern" market. Review the table below and notice how similar the four cycles are in duration. Regardless of the time period chosen, the long cycle which began in 2003 is not expected to bottom until 2023. This should eliminate any question of whether the Dow began a new secular bull market at the low in March 2009.
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04-03-13 | PATTERNS | ANALYTICS |
RISK - Increasing Levels of Market Risk US Retail Investor - Do You Feel Lucky? 04-01-13 Doug Short dshort.com via ZH For all those calling for multiple expansion to save us from dismal earnings - take a look at this... |
04-02-13 | FUND- MENTALS PE |
ANALYTICS |
GOLD-DOW RATIO - A Secular Trend In the chart below, courtesy of Cambridge House, we ask readers: in which period was there a more stable relationship between tangible and intangible values, and a less exuberant irrationality vis-a-vis that which is purely based on confidence, if not so much reality. A second logical follow up question is: where is this ratio of intangible to tangible value going next? The chart below attempts to provide some log-based perspective on precisely this. |
04-02-13- | GOLD | ANALYTICS |
FALLING BEHIND - Here is Why |
04-01-13 | US INDICATORS CATALYSTS DI |
US ECONOMICS |
COMMODITY CORNER - HARD ASSETS | |||
THESIS Themes | |||
2013 - STATISM |
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INSIDEOUS INVOLVEMENT - Stealth Capture of Controlling Financial Repression Information All U.S. Intelligence Agencies – Including CIA and NSA – to Spy On Americans’ Finances 03-14-13 Washingtonsblog.com Government to Spy On Everyone Who Banks In the U.S.Reuters notes:
The excuse given for this intrusion on privacy? As with the destruction of all of our privacies and other liberties, the excuse given is terrorism. Indeed, given that the government claims the right to assassinate or indefinitely detain Americans without any due process of law, do you think government employees will hesitate in seizing the assets of Americans labels as “enemies?” The government has done it before, and President Obama authorized seizure of property again last year. And the government’s take-down of Megaupload was an exercise of the power to seize all of the legal property held in a storage facility because a handful of crooks have illegal property in theirs. |
04-02-13 | THESIS | |
The Puppet Master: Government 03-31-13 Bill Buckler, author of The Privateer via ZH The Puppet Master - Government It has been well and often said that only two types of “paper” money have ever existed in history - those that are already worthless and those that are going to be. Eventually, the physical pieces of paper or plastic which have been given a function as a medium of exchange by government order may remain - but their purchasing power on the market does not. The transition point always comes when the “promises to pay” on which the fiat money depends are exposed beyond the possibility of denial to be the LIES which they always were. History is replete with examples, yet very few ask the obvious question: “Pay? - WITH WHAT??” One of the great wonders of the twentieth century was the lengths to which the economics “profession” proved willing to go to avoid even facing that question let alone trying to answer it. For hundreds if not thousands of years of human history, the vast majority were all too well aware that the government “lives” on the backs of the people. Today, that long-held knowledge has been astonishingly successfully reversed. Today, the perceived “wisdom” is that the people live on the back of the government. In the realm of the history of ideas, it took many centuries to bring forward the idea that a life might be lived without constant kowtowing to government. It has only taken one century - the time since WW I - to all but totally submerge that legacy in a new wave of government dependency. The old and tired phrase - “I’m from the government and I’m here to help you” - is met by as much derision as it has ever been when people bemoan the impositions of their rulers. But those same people rely on the government to insulate them from the consequences of any action they may choose to undertake. There are people who love government, people who hate it, and people who fear it. But when the chips are down, the majority of those same people profess to have “confidence” in the government’s power to protect their “welfare”. Governments count on that confidence” above all other things. Short On Credit And Long On Faith The ignorance over the mechanisms and procedures which power the modern global financial and monetary system is fiercely held. When it comes to the general public, we have seen demonstrations of that on numerous occasions over the past few years, the latest being in Cyprus. As was the case in all previous like instances in other nations in Europe and elsewhere, very few of those demonstrating in the street have ever thought about the TRUE nature of the banks, central banks and governments in which they place their “trust”. Many reports on the anger of the Cypriots have talked about the end of the “age of innocence”. Unfortunately, the term innocence is not defined as the fierce refusal to see what is right in front of one’s face. At the end of his great work, Human Action, Ludwig von Mises dealt with the real problem like this:
Human Action was published in 1949. The problems which von Mises so brilliantly dissected then are incomparably worse now. But the main failing remains the same. Those who refuse to gain the knowledge necessary to stand for something will fall for anything. The result in Cyprus is the latest in a long line of similar cases. To give one example, how many of the “Occupy Wall Street” crowd could give a cogent explanation of what they were protesting against? The specific instances may differ, but the reaction remains the same: “But ... BUT ... YOU TOLD US IT WAS ‘SAFE’!!” What makes it worse is that most knew that it was NOT ‘safe’ - but they refused to admit it to themselves. |
04-01-13 | THESIS | |
2012 - FINANCIAL REPRESSION |
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2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
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2010 - EXTEN D & PRETEND |
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THEMES | |||
CORPORATOCRACY - CRONY CAPITALSIM | |||
TAX AVOIDANCE -- Gaming the 'Nation State' Concept through Offshore Tax Havens The Tax Free Tour A You Tube Video by Taxodus.
How 1% asset-holes’ offshore tax havens hide $21 – $32 trillion 03-31-13 Washingtonblog McKinsey Chief Economist James Henry leads explanation in this brilliant 53-minute video tour of how the 1% hide $21 to $32 trillion in tax havens. The US top seven banks hide over $10 trillion, many top US corporations claim income losses, while the bottom 90%’s tax burden increases – in part to pay top corporations’ tax refunds. Only the middle class and poor pay taxes. Since 1966, inflation-adjusted annual income for the bottom 90% of Americans increased just $59, while the 1% increased income average by $625,000, and the 1% of the 1% increased average incomes by $18,700,000 per year. Our choices seem to be only two:
Obama’s ‘change’: 1% get 81% income gains then tax-shelter $21-$32 trillion; bottom 90% lose income 04-28-13 Washingtonblog Pulitzer Prize-winning tax journalist David Kay Johnston reports IRS tax data since Mr. Obama’s 2009 inauguration shows “change” for 90% of Americans: they lost income. The 1% increased income; taking 81% of gains (the top 1% of the 1% took 39% of this total). This follows a pattern that between 1980 and 2005, the 1% also took over 80% of all income gains. Since 1966, inflation-adjusted annual income for the bottom 90% of Americans increased just $59, while the 1% increased income average by $625,000, and the 1% of the 1% increased average incomes by $18,700,000 per year. This occurs in the context of McKinsey Chief Economist James Henry documenting the 1% hide $21 to $32 trillion in tax havens, the US top seven banks hide over $10 trillion, many top US corporations claim income losses, while the bottom 90%’s tax burden increases – in part to pay top corporations’ tax refunds. It also occurs in context of accelerating technological capacity that should allow all Earth’s inhabitants to live higher quality lives. Mr. Johnston reports the excellent work of economists Emmanuel Saez and Thomas Piketty. Mr. Obama’s Democratic leadership’s escalation of Mr. Bush’s Republican leadership shows us that US politics is one criminal body with puppets at the end of Left and Right arms. One obvious solution is to arrest US political leadership for crimes in unlawful wars and criminal economic fraud. If you’re ready for solutions rather than death to millions, harm to billions, and looting of trillions: now’s the time to take all the lawful action previous generations have given you under the US Constitution. |
04-04-13 | THEMES | CRONY CAPITALISM |
GLOBAL FINANCIAL IMBALANCE | |||
SOCIAL UNREST |
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CENTRAL PLANNING |
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STANDARD OF LIVING |
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INEQUALITY - Standards of Living Inequality – Both Economic and In Access to Liberty And Justice – Skyrockets to Historic Levels 04-04-13 Washingtonsblog "We have fascism / communist style socialism with kleptocracy, oligarchy or banana republic style corruption." Poverty Spikes In America … While the Government Throws Money at the Super-Elite AP reports that the U.S. is seeing the highest spike in poverty since the 1960s, and notes:
Inequality has grown steadily worse: Indeed, a recent study shows that the richest Americans captured more than 100% of all recent income gains. And see this. And the details of poverty in the U.S. are shocking. Social mobility – the ability to go “from rags to riches” – is no longer an American quality. Indeed, many parts of the world have now surpassed the U.S. in social mobility. We’ve previously reported that income inequality has increased more under Obama than under Bush. But we have to go much farther back in history to find inequality as high as in American today. Specifically, inequality in America today is worse than it was in Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America. It is twice as bad as in ancient Rome – which was built on slave labor. 2 Economies: One for the Super-Rich, One for Everyone ElseThere are 2 economies: one for the rich, and the other for everyone else.Jim Quinn has previously documented the growing gap in how the retailers catering to the wealthy are doing, versus the stores selling to the average American. So have Bloomberg and Zero Hedge. Now David Stockman – Director of the Office of Management and Budget under Ronald Reagan – hammers on this theme in a new book:
The Horrible Economic Effects of Runaway InequalityExtreme inequality helped cause the Great Depression, the current financial crisis … and the fall of the Roman Empire. Neither Conservatives Nor Liberals Like So Much InequalityWe noted in 2011:
Why Do We Have So Much Inequality?If runaway inequality is so harmful to our economy – and if most people don’t want so much inequality – why is inequality becoming more and more extreme? The short answer is because the super-elite want it. The rest of this post sets forth the details. (By pointing out that inequality is skyrocketing, we’re not calling for a redistribution of wealth downward. We’re calling for an end to policies which allow wealth to be concentrated in a few hands.) The big banks literally own the Federal Reserve. And they own Washington D.C. politicians, lock stock and barrel. See this, this, this and this. Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others have all said that the United States is controlled by an “oligarchy” or “oligopoly”, and the big banks and giant financial institutions are key players in that oligarchy. Economics professor Randall Wray writes:
No wonder the government has saved the big banks at taxpayer expense, chosen the banks over the little guy, and said no to helping Main Street … while continuing to throw trillions at the giant banks. No wonder crony capitalism has gotten even worse under Obama. No wonder Obama is prosecuting fewer financial crimes than Bush, or his father or Ronald Reagan. Indeed, not only is the chief law enforcement official in the country refusing to prosecute the big criminals, but he’s working to get the already-jailed ones sprung.
David Stockman notes that the Federal Reserve’s policies have helped the rich get richer at everyone else’s expense:
He’s right. Quantitative easing doesn’t help Main Street or the average American. It only helps big banks, giant corporations, and big investors. And by causing food and gas prices skyrocket, it takes a bigger bite out of the little guy’s paycheck, and thus makes the poor even poorer. Nobel prize winning economist Joseph Stiglitz says that inequality is caused by the use of money to shape government policies to benefit those with money. As Wikipedia notes:
(Background here, here and here.) Stiglitz says:
Bloomberg reports:
Another reason why the super-rich are becoming much richer and everyone else poorer is that Obama is prosecuting virtually no financial criminals. Without the government’s creation of the too big to fail banks (they’ve gotten much bigger under Obama), the Fed’s intervention in interest rates and the markets (most of the quantitative easing has occurred under Obama), and government-created moral hazard emboldening casino-style speculation (there’s now more moral hazard than ever before) … things wouldn’t have gotten nearly as bad. Indeed, crony capitalism has gotten even worse under Obama. As we documented in 2009, the bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts. Goosing the Stock MarketMoreover, the Fed has more or less admitted that it is putting almost all of its efforts into boosting the stock market. Robert Reich has noted:
AP writes:
David Rosenberg points out:
The above-quoted AP article further notes:
Indeed, as I reported in 2010:
Professor G. William Domhoff demonstrated that the richest 10% own 98.5% of all financial securities, and that:
(While many argue that the booming housing market shows that the government’s policies are helping the economy, many of the buyers are actually investors and speculators, not people planning to live in the homes they buy.) Over-FinancializationWhen a country’s finance sector becomes too large finance, inequality rises. As Wikipedia notes:
Government policy has been encouraging the growth of the financial sector for decades: (Economist Steve Keen has also shown that “a sustainable level of bank profits appears to be about 1% of GDP”, and that higher bank profits leads to a ponzi economy and a depression). Unemployment and UnderemploymentA major source if inequality is unemployment, underemployment and low wages. Government policy has created these conditions. And the pretend populist Obama – who talks non-stop about the importance of job-creation – actually doesn’t mind such conditions at all. The“jobless recovery” that the Bush and Obama governments have engineered is a redistribution of wealth from the little guy to the big boys. The New York Times notes:
Obama apologists say Obama has created jobs. But the number of people who have given up and dropped out of the labor force has skyrocketed under Obama (and see this). And the jobs that have been created have been low-wage jobs. For example, the New York Times noted in 2011:
AP pointed out that the average worker is not doing so well:
Alan Greenspan noted:
Money Being Sucked Out of the U.S. Economy … But Big Bucks Are Being Made AbroadPart of the widening gap is due to the fact that most American companies’ profits are driven by foreign sales and foreign workers. As AP noted in 2010:
Government policy has accelerated the growing inequality. It has encouraged American companies to move their facilities, resources and paychecks abroad. And some of the biggest companies in America have a negative tax rate … that is, not only do they pay no taxes, but they actually get tax refunds. And a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here. Capital Gains and DividendsAccording to a study published last month by a researcher at the U.S. Congressional Research Service:
Business Insider explains:
Joseph Stiglitz noted in 2011:
Indeed, the Tax Policy center reports that the top 1% took home 71% of all capital gains in 2012. Ronald Reagan’s budget director, assistant secretary of treasury, and domestic policy director all say that the Bush tax cuts were a huge mistake. See this and this. The Bottom LineThe bottom line is that the super-elite have destroyed the American economy and the American system of government. We no longer have a capitalist system within a democratic republic. Instead, we have fascism, communist style socialism, kleptocracy, oligarchy or banana republic style corruption. We noted above that inequality in America today is worse than in modern Egypt, Tunisia or Yemen, many banana republics in Latin America, worse than experienced by slaves in 1774 colonial America, and much worse than in ancient Rome – which was built on slave labor. Arguably, we have lost almost as many liberties as people in those systems. There are two systems of justice in America … one for the big banks and other fatcats, and one for everyone else. And see this. Indeed, the loss of economic power and the loss of freedom often go hand-in-hand. A strong rule of law is the main determinant of prosperity. On the other hand, failure to prosecute fraud by the white collar elite is destroying our prosperity. America has suffered a catastrophic loss of both legal – and economic – freedom. Inequality, in both senses of the word – both economic and access to liberty and justice – is skyrocketing to historic levels. |
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NATURE OF WORK | |||
CATALYSTS - FEAR & GREED | |||
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Tipping Points Life Cycle - Explained
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