What Goes Up - Must Come Down

...Turn out the lights, the party's over are a few expressions with a lot of truth and speaking of truth, the "old professor" spoke directly to the point when Yogi stated, "In theory there is no difference between practice and theory. In practice there is." I don't know if Yogi was referring to the Fed with their belief in engineering our economy, but he often talked about economics, especially with his well known, "a nickel ain't worth a dime anymore." So, in another tribute, here are some visible signs that don't need any words to describe.
US Market
*The Dow Index topped May 19. It has retested and failed in price and volume.
*Dow Transports peaked last November and are down 20% which is BEAR territory.
*Dow Utilities reached their peak last January and are down 18%, just 2% from BEAR range.
*Small Caps are at resistance, but still down 12%.
*Nasdaq peaked in July and it is down 21%. Do you need a Bear hunting license?
Global
*German Dax and British FTSE peaked in April. Dax down 24% and FTSE down 19%.
*China's Shanghai Composite is down 42% Ouch!
*All channel trend lines are broken in all indexes in all markets.
Second Opinion
Elliot Wave is calling for a fifth wave in his cycle technical theory. The fifth wave will be down and possibly a big move, taking the Dow to 14,200. At this moment, I see a short bounce, taking the S & P to around 1929. Nothing like those four digits(1929) in October to make you want to buy the dip. A classic "dead cat" bounce.
All of the above is due to cheap money by the US Fed and central banks around the world. This printing of money distorts the free mechanism of the market, but when a nickel ain't worth a dime, you know manipulation is the cause. There was a positive aspect to the printing, but keep in mind it was the original manipulation by the Fed which sparked the financial crisis in 2008 in the first place.
Under the PRO side is that it allowed corporations to refinance previous debt at lower rates. Good.
Under the CON side it provided temptation to CEOs to buy-back shares which made them rich through options, while at the same time this leaves the company with too much debt and no new research or products to show for the use of its capital. Extremely Bad.
This is just a sampling of S & P companies taking this route.
*Apple issued a bond for buy-back purposes and it cost $23.6 billion with a "B."
*MetLife issued a bond for the same purpose and added debt of $1.5B.
*Microsoft sold $10.75B for buy-back shares.
*Oracle raised $10B for the same purpose.
In fact, according to the Securities Industry and Financial Market Association(SIFMA)US companies issued $1.1 trillion with a "T" in bonds in 2015 which is up 15% from 2014. They have been up every year since 0% rates. This is debt that has to be repaid and if rates rise, will burden all these companies. Then again, the present CEOs will be sipping cocktails at the country club while their former corporations suffer sometime in the near future. This is why there is a difference between practice and theory. How about this insight dear reader?
A journalist recently asked the chair of the Fed, Janet Yellen, if the central bank would keep interest rates at 0% forever?
Her response: "I can't completely rule it out."
They are making up the rules as they play with our lives and all they know how to do is to devalue our money by printing more of it to win the monopoly game. This is another reason why I say, End the Fed!

Real Reason Why Fed Didn't Raise Rates

How quickly they forget. In September 2013 with the Fed's Fund Rate exactly where it is today, the Fed declared that in their forecast model that they would increase the Fed's Funds Rate to 1% by year-end 2015 and 2% by year-end 2016. Then, with the usual conference follow up which is really market manipulation, Janet Yellen said it "could" happen earlier. We get the same manipulation this week.
How about this one? One year ago, September 2014, the FOMC said in its forecast model to have year-end 2015 at 1.375% and for the year-end 2016 to 2.875%. So much BS!
Now
they have reduced their forecast model with a possible negative Funds Rate of -0.125%. Don't think that is possible? It already is happening in Switzerland and elsewhere. In laymen terms this means that you have to pay the banks to hold your money. This is the same argument that anti-gold, pro-fiat people use to proclaim. You had to pay the bank safety deposit fees to store your gold.
Smart Money
is moving into gold. This is the same awakening that happened in the 70s. Gold rose from $42 to over $800. It died because of Volker and those gold people who made those investments have passed away. Time works. People can't even remember September 2013. It may cost you to store gold, but it retains value and when it moves, it moves quickly. Think Apple or Google before they paid dividends. The P/E was high, but you didn't mind because they were growth stocks. A word to the wise is sufficient.
Now, why didn't the Fed raise rates?
because they can't! Any rate increase wipes out previous issue bonds at lower rates and the bond market is bigger than anything. In addition, the Fed is over leveraged. If they were a regular bank, they would be insolvent. Wrong, you say. The Fed can always print new money. This is true and it is exactly what they will do and have always done in the past. However, this is the reason why our standard of living has decreased because the dollar will devalue and it cost more to live. Space is too limited to delve into this aspect of compounding derivatives on derivatives and leverage on leverage, but continuing with rates and bonds. As big as bonds are, they take second banana to the big picture -
Debt!
Since the last Fed Rate Hike in June 2006:
*Global government debt has increased by $24.11 trillion or 85.77% to $55.22 trillion.
*Global household debt has increased by $8.085 trillion or 28.31% to $36.64 trillion.
*Global corporate debt has increased by $23.61 trillion or 69.06% to $57.8 trillion.
Total global debt plus stock equity has increased since the last Fed Rate Hike by $81.33 trillion or 60.1% to $216.6 trillion which is equal to 289% of Gross World Product.
Just last week the US government released its Q2 current account statement. It said our account deficit came in at the low end of expectation at $109.7 billion versus $118.3 billion in the first quarter. In relation to GDP, it is a manageable 2.5 percent. More BS!
Dear reader, if you receive $100 a week, but owe $100 a week, how much do you have to manage? Zip. Correct. Our national deficit is exactly the same as our GDP, but it is growing faster due to interest rates and higher rates will make it grow even faster. Now, do you see the big picture? This is why their is talk of negative rates. Now is the time to get some gold because there is a second awakening happening just like in the 70s and why I say End the Fed!

Penny Thoughts

The expression, "A penny for your thoughts" is no longer valid as money printing has devalued a "wheat" penny to .07 cents or like Yogi says, "A nickel ain't worth a dime anymore." We no longer have the greats like Abbot and Costello to mock our so-called leaders, but if you pickup these penny thoughts, it will be money earned like Ben Franklin advises.
David Tepper
a perennial bull and founder of Appaloosa Management, a hedge fund that has generated 30% returns since 1993 is turning...He basically says stocks are too expensive with weak earnings. Hindsight is perfect. I wish that I had the foresight to follow this guy back in 1993
DB
Deutsche Bank released its "Long Term Asset Return Study." Looking at bonds, equities and housing, it believes all three are at peak levels. In fact, all three are more expensive than in 2008. Why? Printing of money is what I say is the cause.
The media likes to point out how prices are rising which according to them and government officials are suppose to benefit everyone. Not so fast, Kimosabe! Studies show that 50% of all Americans do not own stocks. We all know that there are still 10 million homes underwater and the bull market in bonds is deceiving because the yields have declined for 30 years. How can you survive with a ten year note that pays less than inflation? It all points to the 1%. They were the only ones wealthy enough after the crash in 2008 to take advantage of low rates and cheap prices. Numerous studies show the wealth-gap in the US and the West is growing and the middle class is disappearing. People work, but can't afford to live. I foresee a serious civil unrest in Europe in two years when budgets are cut for social services, jobs are lost and Europeans see immigrants living better than natives. The same problem that the US has had for 50 years. I hope I'm wrong. One other thought on the vast migration which has more Muslims than any other religious sect. How come Muslims call us, infidels and yet, they decide to relocate in the West rather than a nearby wealthy Muslim country like Turkey, Kuwait, Dubai or Saudi Arabia? Maybe as Christians we are trying to show love whereas Muslim nations only preach love, but don't practice it in life?
Trend Line
has been broken which indicates the market has turned. It in itself does not mean a negative stock market because it can also go sideways for a long time too. The market has a channel line that goes from the bottom in 2009 and points upward since then to now. Prices just fell below the channel to break the formation.
CAPE
Shiller's ratio which is similar to the P/E ratio is now at 24.6. This is 48% more expensive than its historical average. Definitely not good.
Death Cross
the 50-day moving average of the S & P 500 crosses under the 200-day moving average. This in itself is not the final sign as it had made false positives in the past, however combining this with the CAPE and the Trend forms a strong parlay of negatives.
BRICs
encompass 25% of the world's land mass and 40% of the world's population. They account for 52% of the global GDP. All four nations are losing steam. Brazil and Russia are facing a borderline recession while India and China are slowing. Bottom line: these nations make up more than half of the world's value and they are turning south to which add this piece to the puzzle.
Debt
the source of the fiat system. The global economy is $57 trillion deeper in debt due to bailouts, stimulus, etc. than it was back in 2008. The energy sector alone has $248 billon in junk bonds and the only reason that mass failures hasn't happened is due to the selling of assets, cutback in spending and most of all, the hedging of prices to which the last is ending and prices still declining. The next big nail will be the IMF announcement on the Chinese yuan and people will become aware that the 1% is looking for a new currency to preserve their wealth with no concern for their fellow citizens which is why our Founding Fathers chose gold to backup our currency as they despised the fiat system which is why I say, End the Fed!
PS: Fed announced that no change in rates. Peter Schiff is so on!

What The Fed Will Do

Before I declare, let me share this market insight from 24 August 2015. The IVV, an ETF designed to smooth out volatility through diversification, a market mantra, plunged 38% at the opening bell. It went from $204 a share down to $164 a share in minutes. Steady and strong hands lifted it to $194 at the close. Dear reader, this safe stock lost a year of value in seconds and this closer look at the market reveals that all the engineering by the Federal Reserve and central bankers will be for naught.
Peter Schiff
gets bold letters and *s because he boldly stated back in the beginning of the year that the Fed has no intentions of raising rates and they will not raise them. He is right! He uses polite language, I don't.
Keep in mind the last BS artist at the Fed, Ben Bernanke said in 2007 that the financial system was safe. The housing crash would not spill over into the economy or cause global ramifications. He never accepted responsibility for his direction of the Fed which caused all of the above. Ben Franklin would have had him in jail. The Fed's only purpose is to allow the privatization of profits and if things go south, the socialization of losses. So, what is going to
happen now?
The Fed will take into consideration the present state of affairs. The US unemployment level reached the target of 5.1% which is a lie because there are ten million who gave up looking for meaningful work that pays a living wage. In addition, the weekly hours worked is 34 not 40. Also, there is a disconnect between unemployment claims and job layoffs. This year the oil patch laid off over 100,000 workers and yet, the total of the weekly claims for the year is nowhere near that number. Probably, Chinese accounting.
Speaking of China, that nation hopped on the devaluation bandwagon before the Fed's decision. By lowering their rate now, they still will enjoy a currency advantage if the Fed raises rates to which their currency would go higher. They want to keep their niche of those cheap exports. The ECB did a double down on printing. Mario Draghi extended QE bond buying in Europe whose economy has actually shrunk from the 1.7% in 2014 to 1.5% in 2015. Do you remember what the EU stated back in December 2014? They declared that 2.5% to 3% growth for 2015. They weren't alone as the IMF agreed with them.
Now,
half of the euro members are in recession along with Canada and Brazil. In addition, there are many nations on the fence like Russia and Australia. The Bank of Japan has doubled Japan's money supply. Then, China again. You ask, why is it slowing? China's debt over the last ten years has exploded to the point where household and corporate debt is over 200% of GDP. When you reach that level, you become a genuine member of the Greek "bailout" club.
All
of the above and other factors will effect the Fed's decision at their next meeting. I agree with Peter. They will do nothing. They will offer more BS and innuendoes that should make Peter Schiff a star, but won't because he is anti-fiat. They keep people like him and me on the outside looking in. However, because the Fed declared that they will raise rates this year and not to lose control of the market, I see them making a slight raise in December with another slight raise in January 2016. Even if they raise rates in September, the bottom line outlook will not change. The havoc that they created in the bond market will force them into the QE corner. You see, after the market tanks or I should say, resumes its slide, they will institute a new form of QE IV. They will try to spin the name to call it something else, but by that time the bond market will be reeling because the older, lower yielding bonds have crashed to which the Fed will be buying. Can you say a balance sheet of $10 trillion? I wonder how they will keep gold down at that point? This is yet another reason why I say, End the Fed!      

Beware the Devil, Cause I Got the "Feeling"

No, not the James "OU" Brown classic, but that uneasy moment when you have to rub your stomach in a circular motion to put it at ease due to the gyrations of the stock market.
One day recently, the market opened 1,000 points down and closed with a 500 point loss. Less than a week later, it was up 600 points only to turn down at the close and lost almost 200 points. A few days later, it had back-to-back up days of over 600 points and another 300 points. Almost a thousand point move in 48 hours. What's happening?
Market Signals
The market is telling you that more than distribution is taking place. Smart money is exiting. What I'd like you to do is think back to August 2011. It was the last time that the market had consistent volatility, which is a code word to mean, tanking. The market signaled that September and October would be rough waters and it was, but few took the clues. They just relaxed under the summer sun. The market had triple digit days just like today. Now, add these aspects...
Dear reader, back in 2011 every central banker was pushing stimulus. China made "work" projects and built "ghost cities." In the US we had QE and I predict it will return - see future piece, coming soon.
Today, excessive debt is curtailing stimulus. Governments are going back to the playbook and doing the old fashion, beggar-thy-neighbor approach with currency devaluations. In addition, the Middle East turmoil has caused a mass migration which will cause a severe backlash. I expect the EU to come forth with new regulations to address this problem when they should be doing things to help countries like Turkey and Jordan and in Europe for Italy, Greece and the Balkan nations. Bottom line: Europe with serious unemployment will also have unrest due to this immigration problem.
As the global nations look to the US to be the engine for their economies, it released a revised second quarter GDP results. It says the US economy grew at 3.7%. I'm thinking that the US hired Chinese nationals with their constant 7% growth rate which to me is all fluff with no substance. All one has to do is check out the yearly lows of our oil companies. Earnings are down 60% and stocks are in bear territory. In fact, all commodity companies are suffering and this effects the emerging markets too. This is why smart money is getting out of the market. The recent bounce only reflects the strength of five companies who are holding up the market.

*Apple up 5%
*Facebook up 21%
*Google up 29%
*Amazon up 71%
*Netflix up 152%
and the rest of the S & P 500= 0.5% This is the rest of the story. Don't buy the dips. The safe and smart thing to do is get your money out and preserve your capital. I see oil in the 30s and then, Chevron would be a nice opportunity for the long term. However, if you want one more sign and this one will mess with your head. The famous horror director, Wes Craven just passed. He used all types of visible messages with bad overtones like the ancient sign of the devil, 666. The Dow declined 6% for August. Nasdaq declined 6% for August and the S & P declined 6% for August. You play with the devil, you're playing with fire. Therefore, I began with the Godfather of Soul and so, I will end it with the Stones, "Please, allow me to introduce myself..." 

Subprime II

No, not in housing, although it is way too early to make a definitive statement about loan losses tied to poor credit borrowers. This problem centers on auto loans. Yeah, just when the stock market falls into correction territory, Sebastian gives us another broken shoelace which could lead into the second shoe dropping. Hey, he's just a messenger of truth that gives you, dear reader, a heads up. It is something to keep in mind when the shills tell you to "buy the dips."
Subprime Not Dead
It almost died with the housing crisis, but gamblers knew the Fed would cover their backs. They found a new home in car loans. Subprime home loans now only account for a tiny fraction of mortgage loans at .25%, however they now make up 26% of all auto loans and rising.
As stated in a earlier piece, the car loan borrowing term has been continually extended with the continually rising price of a new car. The problem defies the lies that there is no inflation. It is so bad that average age of cars on American roads is at a record of eleven years young.
The hawkers still want to shout on late night TV, "Need a car? C'mon, down! Just $99. down and $99. per month...No credit? No problem.." They only can do that because in the 70s with a term that was 36 months. In the 80s, it went to 48 months. Now, that new car will have 200,000 miles on it when you pay the check at 84 months.
Car sales will most likely tally 17 million sales in 2015 and that is great for the economy, but you are straddled with that extra bill for the next seven years and one miss, one dental visit, one layoff and you are basically bankrupt. The gamblers realize that and that is why they moved into this market.
60 Minutes
and the US government hounded the Mafia over loan sharking, but they hold the door open for companies like Springleaf(LEAF). This jewel specializes in subprime auto loans and they charge as much as 27%. They are twice as bad as my pisans. They are the real crooks!
Things are stating to look cloudy. If they get worse, I plan to short LEAF and this is my indicator.
Nomura
released a study which showed auto loans in delinquency. It is high and approaching 7% of the $16.8 billion market backed by subprime. The loans are tied to bonds which recalls the expression, "Can you say, swaps?" These gamblers are lowering the loan standards to gain market niche, but life happens: one toothache, one car repair or new tires, new brakes or layoff and the clouds will open and rain will fall.
Critics decry us who call to mind life as we see it and they never see the crisis until it happens. I see this situation as another way to a crisis and if it develops, our economy will be stuck in second gear.

5 More Reasons To Lose Sleep

There is two sides to a story and the good side of this piece is the fact that it should not cause apnea which is life threatening. The bad news is that stress and disturbances can cause a sleep disorder. Lately, the evening news disrupted our supper, causing indigestion. It led to difficulty in sleeping due to Greece, Shanghai market, Ukraine, Syria and missing planes. Then, nothing like the center of a hurricane. We caught some good zee's. In fact, we got desert. Moody's upgraded Greece to triple C(CCC). Hey, don't laugh. US infrastructure is rated "D+."
Hey, we're all sick of it and I hate to add to the disharmony, but I become aware of five reasons that can lead to insomnia, although the song had more rhythm, "I was tossing and turning all night..."
1) US banks that were too big too fail back in 2008 are now 45% larger. The expression needs an update because the root of the baking industry problem was derivatives. Today, the so-called insurance vehicle is $100 billion bigger than during the financial crisis.
2) The above problem gets compounded(pun intended)due to the danger that the FDIC insurance fund does not have enough $ to cover any major default. In fact, the fund only has enough dough for 1.01% of bank money. Keep in mind that our government lost control of our currency and no one knows the exact amount held outside our border. We do know that it is almost 50% which is astounding and foreigners hold more $100 dollar bills than we do. Unbelievable but true!
3) The danger that a desperate Congress looking for money to spend will impose new regulations like capital controls. In fact, they already have controls on the books. Any banking transaction of $5K is reported and $10K always gets a closer look. There is also the fear that social security will be amended to allow privatization or some form of it. This could lead to apnea! By the way the government has already taken this money and pension money too when they needed it during the debt ceiling crisis.
4) According to Global Finance and their annual list of the 50 safest banks in the world, only five US companies made it and the leader of this pack came in at #39. Even I don't believe this one.
5) For the first time more US businesses went out of business than our free enterprise opened new businesses. Not only are we losing our social mobility, but we are losing free enterprise and without it, there can be no American dream as envisioned by our Founding Fathers.
I guess if you want to see something, your mind will help you find it. However, if your subconscious places you in dreams that give you a nightmare, I offer this one last suggestion. Turn the pillar over. The cool side will allow you to return to an island paradise with eye candy all about.