Signs, Signs, Everywhere a Sign...

Do you remember that oldie? The wisdom behind it is still relevant. Greece proved that. I fear the US national deficit will second the motion. In fact, Greece has borrowed less than the US since 2007 when you relate the borrowing as a percentage to GDP. The US borrows 7.45% and Greece takes 7.3%. Both are really sad numbers.
In relation, it has been years since Pete Peterson's, Running On Empty and deficit figures have doubled which is in itself, totally insane to contemplate.
The Shanghai stock market climbed 159% in less than a year and then, lost 35% in less than 30 days.
Picture Clear?
Connecting the dots and it gives focus. If it is still not clear enough for you, here is some help and clues to provide an answer.
* The Shanghai market may bounce, but the Chinese society look around and see a slowing economy. This will cause a rush for the exit doors. The government will only compound the effect with more desperate restrictions. Then again, the Chinese see their housing market imploding and their faith in government will be shaken which could lead to a new bubble like gold, but most probably, everyone will hold their money under their mattress. In a sidebar, South Korea just had its biggest month in the purchase of the yellow metal.
* The US market is facing a summer doldrums with September and October looming.
* Oil prices! The summer driving seasonal bounce is over. Oil inventories are building and Iran only adds to the glut. Many small explorers could go belly-up which will effect the $600 billion junk bond market. Like I say in my unpublished book, all things are connected.
* Emerging markets are suffering from low commodity prices and the strong dollar effects our companies too.
* The Fed, if they finally do what they say they will do and raise interest rates,this will cause a ripple effect in Treasuries and all bonds. If too many sell, a liquidity crisis could surface. I have previously warned you that there is insufficient cash in circulation to cover all the credit debt that has exploded since 2007.
* Gold. It is in a quandary. The big buying season in August is here and both the Chinese and Indians could spark a needed rally. If it becomes a meme with Europe, the US will awaken against the wishes of the fiat powers. They won't be able to stop it, but this will only cause another bubble and all bubbles never end well.
Now everyone, "Signs, signs, everywhere a sign..."

Buybacks Exposed: Bottom Line Revenues

Wall Street CEOs use a lot of tricks to keep their stock price high. They do this for many reasons and most of them are not good for shareholders. In this follow the leader game, buybacks hold center court. When companies buyback their shares, they are implying that the value is too low or in the near-term future, they expect something good like a new gismo, a big sale or maybe even a merger. However, in the recent trend by CEOs, it is to cover shortfalls in bottom line revenues with declining sales. You see, dear reader, if there are less shares available, the division of earnings looks better. The quarterly earnings number can always be manipulated by changing a date of receivables to include it in the recent quarter if needed, however there is no way to hide declining sales and revenues even though many COOs have used many tricks like Pro Format accounting schemes.
Apple
the darling of Wall St. and investors has used buybacks to make their stock appear better. They have brought back 10% of their shares and still, the total bottom line is shrinking.
Many others are following their lead. Bed, Bath and Beyond could argue for the poster-child photo. Somehow, they have fooled the public, but a closer look shows that the bottom line revenues have declined quartet-after-quarter. They are not alone. Big Blue has fallen six quarters in a row as well as Proctor and Gamble, DuPont and many more.
Caterpillar in its conference call, tries to imply that things will pick up and this is only temporary, but iron ore, gold and mining in general, speak a different language. Starbucks is the latest to play this game. I guess people are tired of $3.00 per cup of coffee with no refills.
The banking industry wrote the playbook in this category. They have a major influence in the media and among analysts. They use this and other techniques to keep their share price high like putting the spin on stress tests. They pass and they claim greater capitalization, however they know that their exposure to the derivative market could collapse the global market and bankrupt their company. They smile like all is well as they buyback their shares. The CEOs can't wait to use their warrants to become not only a millionaire, but a billionaire.
Old Technique
was cost cutting which generally meant, jobs. Qualcomm is old school in this game. Recently, they announced a 15% layoff in employment. Think about that? If your business is growing, do you layoff people? This is never a good sign and it points to the saturation in cell phone market.
DuPont uses both buybacks and job cuts to perform magic for their shareholders with a dividend mention for icing on the cake. Keep in mind, dear readers that dividends are usually last to go, but they signal the crash is happening and the boat is taking in water. Not good.
Bottom Line:
Then, when you add up all the signs and the bottom line is falling, this message means that you are trapped under water and at the mercy of the market. In addition, other factors to get your share price back to neutral. This present declining stock market is reflecting the future outlook and it isn't pretty. If you recall my 2015 forecast, I predicted this scenario at the end of the first quarter. I was a little early, which is better than late.

After The Dust Settled, The Affordable Care Act Now Will...

explode national, state, and individual budgets in 2016 and beyond. According to the National Inflation Association(NIA) in there study of New York State providers, they uncovered huge increases for 2016. They studied filings by the four largest health care providers in the state and the range of premium hikes is 13.35% to 17.18%. If you include all the care providers in the state, it averages around a 12.73% increase.
New York is not the exception. In Oregon the projected increases will be 16%. You won't believe what the health providers are asking in Minnesota? They want a 54% increase!
The Kaiser Family Foundation said plans rose an average of 2.2% in 2015 nationally, however they anticipate another 4.4% increase in 2016. No one offers any other projections further out.
Blue Cross said the cost to resign new enrollees with Obamacare made the company lose $141million in 2015. They want a 36% increase!
All these price increases were realized by investors back in 2013. The health care index(DJUSHC) was 465 in April 2013. Today, it stands at 826. A rocket, straight up!
They knew two things. One, millions of new enrollees and two, price hikes to cover any losses. They had the security to know price limits were not negotiated by the president's plan.
Doesn't End There...
enrollment in Medicare is also busting budgets because of the unexpected surge in new enrollees. In Kentucky the government estimated that it would get a 150,000 new patients, but they were half wrong. It was double that! They added over 311,000. Their budget allocated $34 million, but they will need $74 million. This math progression will cause the state to go bankrupt as the new estimate for 2021 calls for $363 million. That is over 10x the present budget in six years.
I have been against Obamacare since it came out. The president ran with the concept of First Payer. I endorsed that idea, but what we got is a sellout to Big Pharma. There are no price limits. For example, you check tire prices, you know the cost. Get a broken leg, and you are slaughter of the lamb. You are subject to unnecessary tests, padded bills, etc. Obamacare did not make hospitals and doctors set a fee for service which was the root of the inflationary prices in health care. In addition, the bill forces young people to purchase health insurance under plenty of law. They will become criminals for not buying something that they don't need. I could go on and on... from the concept of doctors working 36 hour straight shifts which no person could perform, to limiting student enrollments in medical colleges to keep wages high and limit costs.
Bottom Line: the Affordable Care Act is unaffordable! 

Did You Get Shanghaied?

A few weeks ago, I predicted a major downturn for the Shanghai Index. It fell over 28%. If it weren't for draconian measures, it is possible that it could hit my target 3100. There are many reasons and if you go, dear reader to the archive, you can reread the article.

 

 

 

As you can see, the parabolic move is over. These type of stock movement generally returns to the

starting point. This is how I determined 3100. When you consider that 255 million people opened

accounts in the last nine months with little market experience, the Shanghai market is just one, big

casino. "Everyone is a genius when the market goes straight up," is an old saying with more than one

meaning. One of the implied meanings is markets usually turn when "dumb" money enters. The Chinese market is 85% retail because it is mostly closed to foreign investors.

Last Year...............................................................................................................................

the Shanghai market got connected to the older, more established Hong Kong market. Next year the smaller, Shenzhen will be added to form a triangle connection. The Shenzhen is composed of newly, private enterprises. This exchange does not have government backing and as you will see in a moment, could be the reason why the three indexes collapse. When you put the above picture into dollar values, the Chinese lost economic wealth to the tune of over $3 trillion in one month. To put that figure into perspective, China's losses are double the size of  Australia's entire stock market.

Stop the Bleeding!................................................................................................................

Chinese regulators have come up with a new regulation everyday of the past week to stop the bleeding. The market has rallied up to the 4,000 range, but the fear behind the recent movement is alive and well. China has instituted many old tricks and they even are writing new chapters.

* They've banned short selling.

* They will not allow any investor or any officer in any company or any fund that holds 5% of any company to sell their stock for the next six months regardless of price action.

* They've halted trading on 51% of all Mainland Chinese companies.

* They've lowered their banking interest rate for the fourth time this year.

* They've told all brokers not to liquidate client accounts due margin calls, basically suspending margin requirements.

* They've told "special authorities" to investigate anyone who sold short or is seeking to sell short.

Even with all of the above and who knows what will be added in the coming weeks, debt margin is still over 4% of market cap! In addition, the Chinese government is buying up vacant homes to sell as affordable housing. This sounds like a nice idea except it only spurs more speculation in an already overheated housing market whose bubble is popping.

Adding it up: the Chinese economy is slowing, housing is tethering, oil is already busted and now, questions about investing in the Chinese market will cause many to get out after any rally fearing further restrictions to trading. Eventually, this BEAR MARKET will spread to the region and to the global community. Don't get taken for a ride!    

 This piece was written before the two completed deals: The nuclear agreement with Iran will eventually add a lot of oil to an already gloated market. Not good. The Greece deal is only kicking the can down the road and each time it gets harder and harder because the can is pretty beat up. This will not end well. Bottom line: Don't Get Shanghaied.   

 

Why Is Tsipras Being Lambasted?

As I implied in my last article, the EU is seeking to oust Alexis Tsipras and his Syriza - led government party from office. They see in the referendum an opportunity. A "yes" vote will cause chaos within the Greek Parliament and a new call will arise for an election to form a majority in government.
It also shows the smallness and vindictiveness of the EU members. To bad for the EU it didn't work, but I ask WHY?
Tsipras
has done a credible job. His leadership showed in the fact that the Greek economy registered a slight surplus in 2014. He reduced imports, a drain on your finances by an astonishing 36%. He cut government jobs and hours worked. He cut pensions and jobs, while facing the results of austerity of the EU policy which has caused over 25% unemployment in Greece, OUCH!
He faced a challenge that in reality is insurmountable and the government leaders in the US had better heed the warning of continuous deficits in relationship to the ratio of debt to GDP. It can blow up your economy.
Our press doesn't give a fair or honest reporting of the situation. They paint Tsipras as a buffoon because our leaders side with fiat central bankers who oppose Tsipras.
Reality
The poor Greek nation suffers high unemployment with little prospects. They suffer with migration of multitudes from wars in the Middle East with little assistance and now, capital controls that seep fear into the masses. Just imagine if our President instituted this technique on our banks to stop runs on the banks. It happened before in 1929 and 1933. Just think how you would cope if you could not use your credit card or pay with your smartphone? Checks were not allowed and you could only withdraw $100 from your ATM or full service bank? This is what the EU has done to Greece.
Now, the EU has called a final meeting for this Sunday. They dragged this out, so Greece would squirm a little as their banks are still closed and under stress. Greece had their finance minister quit to show some appeasement. His replacement, Tsakalotos was initially well received, but now gets the cold shoulder. The EU has basically given Greece an ultimatum. Regardless of the outcome, the distrust seed has been planted. It will germinate at some point.
Keep in mind, this is what the Federal Reserve could do in the US. It is why I say, End the Fed!
P.S. : I stated right from the beginning that Europe's Southern Nations should form their own economic block with their own currency. The PIIGS (Portugal, Ireland, Italy, Greece, Spain) would have a low valuation which would spur their exports, grow jobs, tourism, and their economies. They are being exploited by the Northern Nations who benefit with a lower priced currency which helped their economies while the Southern Nations received no such benefit.         

Market Is Going To Get> SHANGHAIED

You don't hear that expression much anymore. It means to be taken for a "ride." It goes back to the 1800s, when men were kidnapped to ships sailing to China by compulsory force. That image associated with the word today means a different ride. It is a rocket, straight up from the lows of 2009 on the Shanghai stock market. The index has risen over 122% or from 2025. It set a peak record on 12 June 2015 of 5178. It is up over 3,000 points in just one year. The Chinese are creating millionaires. However, dear reader the root of the word is the word. Like the song by CCR, I see a Bad Moon Rising.
Signs of Trouble
New accounts are off the charts. During the period of late 2008 to the present, there were 4,435,255 new brokerage accounts according to a report by NIA. This works out to a monthly average of 196,671 per week! It sounds and looks like 1929 all over again as the Chinese go All-In. Debt margin has increased on average by 15.24% and it is 4.22% of market cap!
Shanghai has percentage rules in stock trading. After a 10% move, a stock is halted for the day, however, it is different for IPOs. IPOs are allowed up to 44% per day and up to 110% for the week. From January to February in 2015, 18 companies went public. Every one went up the 44% limit and 17 of the 18 made the 110% gain for the week. Who wouldn't want to go all-in?
Roller Coaster
during the ride up, there have been moments of pressure. Last month the index dropped over 6% in one day, however, it steadied and hit the new peak earlier this month until this week. In just eight days the market has dropped 20% which is BEAR TERRITORY. It closed at its lows on Monday at 4053. The Chinese feel that the market will always come back like it did after falling from its all-time peak of over 6,000 in 2007. They don't understand that the market can be irrational for 20 or 30 years and much longer than you can be solvent.
Now, like I declare in my unpublished book, everything is related. Let us look at the other expression, "Greek Tragedy." A deal will be made by the EU with the Greek government because the Greeks are owned by the EU. They sold their sovereignty when they joined. The leaders know, but the people don't. Eventually, they will and this play will live up to the root of Greek plays, a tragedy.
I wrote that on Saturday and I was wrong. Greece defaulted, but the EU got control of the media to make like this was nothing more than a technicality. That, dear reader is pure BS!
It is so bad that the euro rose while the dollar declined which is the biggest lie of all! As I see it, the Greek Prime Minister is made out to be a buffoon, but I feel that he understands that fiat money is just a game. The people in power do not like to be shown up and being small in skin, they will seek to remove the Greek leader. They will get their chance as he has laid out the situation to his country which will vote on acceptance or refusal this Sunday. Already, the media is using fear to scare the vote for acceptance and to stay in the EU. They probably will succeed, but maybe, just maybe, a denial will again save democracy with this tragedy, and once again, Greece will be the cradle of democracy.
In the meantime to gather sympathy and appear like the "good guys," the EU will use one of their phony programs like the Economic Stability Fund to "help" the Greek people get by in this critical time. All they do is print on some paper, click-on their site and presto!: Money for economic stability in a time of crisis.
Nevertheless, no matter what the outcome of the outcome, all governments will stand on the side of the central bankers, so they look like the correct side and the Greek leader the fool. This will spark a world rally in markets, although only temporarily. This rally will stop the bleeding in Shanghai and the belief in this market will only make the final outcome more severe. By mid-July the joy will be over and the smart money long gone as a new low will be reached and I will do a follow up at that time to see how low it can go. At the moment, 3108 is in play. Elsewhere, the US will not be shielded from the fallout. We have a serious economic problem in Puerto Rico, and Illinois will soon make headlines under bankruptcy At present, we are also in a bubble in terms of margin debt. It surpassed the record of 2007 and it is over $507 billion. Margin calls in all markets can start a cascading fall that becomes self generating to the downside. Support for the Dow in the US is 16,500, however the transports never reached a new high which means the US is a conflicted market with over-priced stocks at over-priced evaluations.
Can you say, LIMBO?

Dead Reckoning Day

One aspect that is overlooked with the Federal Reserve's fiat money system is the fact that our whole economy is based on faith. Faith is what backs our system. We place faith that our currency will deliver goods from purchase. No one rejects the IOU. Please, don't bring up the isolated circumstances of a mortgage lender refusing payment in cash or a rental office demanding a money order or check because they are also variations of faith based on credit. Everyone takes credit.
Credit is an Asset
You see, dear reader, according to the Fed and the government, credit is money. Everything we do is a result of this format. You get a loan(credit)to build a house. Your mortgage is your credit. The builder gets his supplies on credit. His workers construct your house for the first two weeks based on credit of the boss, as everyone in line awaits the release of payment which is numbers in an account that go plus and minus accordingly. No one transfers huge amounts of actual cash. All our bills are plus and minus signs on a ledger. We pay the utility bill by check and the energy company gets a plus while you get a minus in your account. This is the root of the problem. I'll explain.
Experian
the information and market company reported that used car loans(credit)have reached an all-time high of 62 months. Our fellow citizens are buying used vehicles and they will pay another five years to own a second hand car! Why, you ask?
Because we don't earn and save enough to be able to purchase a used car with cash. People, that last word is the focal point of this piece.
Because the convenience of credit allows us to go about our daily needs without carrying a truckload of cash and becoming a potential robbery victim. The problem with real cash as related to credit magnifies itself when someone's check bounces. Not that an individual scam can bring an economy to a halt. However, dear reader, states, cities and government use credit just like we do, but the numbers in the plus and minus accounts are much, much bigger. Therein lies the problem.
It is why Greece is in the headlines. In the US 36 states will soon vie for that space. Pension and medical promises to local, state and federal government are underfunded. They are now do.
GASB
The Government Accounting Standards Board wants states to come clean and update their ledger. Our federal government keeps things off the books and so do local "leaders."
This will only make the problem known because the last resort is you and me to cover these obligations. Rough estimates indicate that $500 billion is needed for pensions and another $500 billion to cover medical promises. Who will pay? (see above)
Now, back to our cash in circulation. Estimates say we have $250 billion. I say that is probably wrong and the figure is much, much higher. Nevertheless, the amount will be no where near the amount of debt and credit that moves our $14 trillion economy with another $23 trillion based on credit.
Dear reader, when states and cities like Detroit fail, that bounced check causes a chain reaction just like the threat of Greece defaulting. Bills must be paid, Cheney!...and there isn't enough cash to go around. When that day arrives and it is not far off because credit keeps expanding, a day of dead reckoning is just behind the promise of a unfunded pension with medical coverage. When that day comes, if you don't have cash, precious metals or something of value to trade, you will go hungry and find yourself homeless. It will get worse because civil unrest will follow and so much fear that none of the charity, food banks or similar goodwill functions will be open to operate. The government will institute capital controls to limit banks and ATMs just like in Cypress and now, Greece. Thanks to the Federal Reserve things will get ugly for awhile which is another reason why I say End the Fed!