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The Coming Run On Banks And Pensions

“There are folks that are saying you know what, I don’t care, I’m going to lock in my retirement now and get out while I can and fight it as a retiree if they go and change the retiree benefits,” he said.  – Executive Director for the Kentucky Association of State Employees,  Proposed Pension Changes Bring Fears Of State Worker Exodus

The public awareness of the degree to which State pension funds are underfunded has risen considerably over the past year.  It’s a problem that’s easy to hide as long as the economy is growing and State tax receipts grow.  It’s a catastrophe when the economic conditions deteriorate and tax revenue flattens or declines, as is occurring now.

The quote above references a report of a 20% jump in Kentucky State worker retirements in August after it was reported that a consulting group recommended that the State restructure its State pension system.   I personally know a teacher who left her job in order to cash completely out of her State employee pension account in Colorado (Colorado PERA).  She knows the truth.

But the problem with under-funding is significantly worse than reported.  Pensions are run like Ponzi schemes.  As long as the amount of cash coming in to the fund is equal to or exceeds beneficiary payouts, the scheme can continue.   But for years, due to poor investment decisions and Fed monetary policies, beneficiary payouts have been swamping investment returns and fund contributions.

Pension funds have notoriously over-marked their illiquid risky investments and understated their projected actuarial investment returns in order to hide the degree to which they are under-funded.  Most funds currently assume 7% to 8% future rates of return. Unfortunately, the ability to generate returns like that have been impossible with interest rates near zero.

In the quest to compensate for low fixed income returns, pension funds have plowed money into stocks, private equity funds and illiquid and very risky investments,  like subprime auto loan securities and commercial real estate.   Some pension funds have as much as 20% of their assets in private equity.  When the stock market inevitably cracks, it will wipe pensions out.

As an example of pensions over-estimating their future return calculations, the State of Minnesota adjusted the net present value of its future liabilities from 8% down to 4.6% (note:  this is the same as lowering its projected ROR from 8% to 4.6%).   The rate of under-funding went from 20% to 47%.

I can guarantee you with my life that if an independent auditor spent the time required to implement a bona fide market value mark-to-market on that fund’s illiquid assets, the amount of under-funding would likely jump up to at least 70%.  “Bona fide mark-to-market” means, “at what price will you buy this from me now with cash upfront?”

For instance, what is the true market price at which the fund could sell its private equity fund investments?   Harvard is trying to sell $2.5 billion in real estate and private equity investments.   The move was announced in May and there have not been any material updates since then other than a quick press release in early July that an investment fund was looking at the assets offered.  I would suggest that the bid for these assets is either lower than expected or non-existent other than a pennies on the dollar  “option value” bid.

At some point current pension fund beneficiaries are going to seek an upfront cash-out. If enough beneficiaries begin to inquire about this, it could trigger a run on pensions and drastic measures will be implemented to prevent this.

Similarly, per the sleuthing of Wolf Richter, ECB is seeking from the European Commission the authority to implement a moratorium on cash withdrawals from banks at its discretion. The only reason for this is concern over the precarious financial condition of the European banking system.  And it’s not just some cavalier Italian and Spanish banks.  I would suggest that Deutsche Bank, at any given moment, is on the ropes.

But make no mistake. The U.S. banks are in no better condition than their European counter-parts.  If Europe is moving toward enabling the ECB to close the bank windows ahead of an impending financial crisis, the Fed is likely already working on a similar proposal.

All it will take is an extended 10-20% draw-down in the stock market to trigger a massive run on custodial assets – pensions, banks and brokerages.  This includes the IRA’s.  I would suggest that one of the primary motivations behind the Fed/PPT’s  no-longer-invisible hand propping up the stock and fixed income markets is the knowledge of the pandemonium that will ensue if the stock market were allowed to embark on a true price discovery mission.

Like every other attempt throughout history to control the laws of economics and perpetuate Ponzi schemes, the current attempt by Central Banks globally will end with a spectacular collapse.   I would suggest that this is one of the driving forces underlying the repeated failure by the western Central Banks to drive the price of gold lower since mid-December 2015.   I would also suggest that it would be a good idea to keep as little of your wealth as possible tied up in banks and other financial “custodians.” The financial system is one giant “Roach Motel” – you check your money in but eventually you’ll never get it out.

China Begins To Reset The World’s Reserve Currency System

It’s a strategic move swapping oil for gold, rather than for U.S. Treasuries, which can be printed out of thin air.  – Grant Williams

A report released by the Nikkei Asian Review indicates that China is prepared to release a yuan-denominated oil futures contract that is convertible (backed by) physical gold.  The contract will enable China’s largest oil suppliers to settle  oil sales in yuan, rather than in dollars, and then convert the yuan into gold on exchanges in Hong Kong and Shanghai.

This is a significant step in removing the global reserve currency status of the dollar and resetting the the global economic and geopolitical “landscape.”  Over the past several years, China has quietly established yuan-based currency exchange facilities, which has set up the ability to implement this new non-dollar trade settlement financial instrument. According to the Brookings Institute, 34 Central Banks around the world have signed bilateral local currency swap agreements with the PBoC as of of the end of September 2016, including the major oil-producing countries.  With this new contract, China’s largest oil suppliers will now be able to transact directly with China, and other oil importing countries, using yuan which are directly convertible into gold to settle the trade.

As Alasdair Macleod asserts, “It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either.”

Since 1973, OPEC oil has been quoted and traded using to U.S. dollars, otherwise known as “petrodollars.”  The “recycling” of petrodollars into U.S. Treasuries has been the life-blood of the U.S. economic and political system.  In addition to reducing a major source of funding for the the U.S. Government’s enormous deficit spending, the introduction of a gold-backed yuan oil futures contract is an important step toward removing the dollar as the world’s reserve currency. More significantly it reintroduces gold into the global monetary system.

While the new gold-backed “petroyuan” will allow oil producers to sell oil for gold rather than Treasuries. Furthermore, it reduces the ability of the U.S. Government to impose its will on the rest of the world.  It’s a strategic step toward not only ridding the world of its dependence on dollars, but also of reducing the ability of the U.S. to exert global economic and financially tyranny.   I would also argue that it’s one of the primary reasons behind the inability of the western Central Banks to drive the price of gold lower recently.

Gold Breakout Signals A Financial Hurricane Coming Onshore

I found it amusing that Mohamed El-Erian wrote an opinion piece for Bloomberg which asserted that gold is not much of a “safe haven these days.”  His thesis was entirely devoid of material facts.  His underlying rationale was that safe haven capital was flowing into cryptocurrencies rather than gold.  I guess if one has a western-centric view of the markets, that argument is a modicum of validity.  However the scope of the analysis omits that fact that the entire eastern hemisphere is converting fiat currency at a record pace into physical gold that requires bona fide delivery outside of western custodial roach motels.

Elijah Johnson invited me onto his podcast sponsored by Silver Doctors to discuss why the financial upheaval beginning to engulf the United States will be much worse than the 2008 “Big Short” crisis.  We also discussed by the precious market has always been and will continue be the best place to seek shelter from coming financial hurricane:

If you are looking for ways to take advantage of the next move higher in the precious metals bull market, you can find out more information about the Mining Stock Journal using this link:  Mining Stock Journal subscription information.

“Stock Market?” What Stock “Market?”

“There are no markets, only interventions” – Chris Powell, Treasurer and Director of GATA

To refer to the trading of stocks as a “market” is not only an insult to any dictionary in the world that carries the definition of “market,” but it’s an insult the to intelligence of anyone who understands what a market is and the role that a market plays in a free economic system.  By the way, without free markets you can’t have a free democratic political system.

The U.S. stock is rigged beyond definition. By this I mean that interference with the stock market by the Federal Reserve in conjunction with the U.S. Government via the Treasury’s Working Group on Financial Markets – collectively, the “Plunge Protection Team” – via “quantitative easing” and the Exchange Stabilization Fund has destroyed the natural price discovery mechanism that is the hallmark of a free market.  Capitalism does not work without free markets.

Currently a geopolitically belligerent country is launching ICBM missiles over a G-7 country (Japan).   In response to this belligerence, the even more geopolitically belligerent U.S. is testing nuclear bombs in Nevada.  The world has not been closer to the use of nuclear weapons since Truman used them on Japan.  The stock markets globally should be in free-fall if the price discovery mechanism was functioning properly.

To compound the problem domestically in the U.S., the financial system is now staring down a potential financial catastrophe that no one is discussing.  The financial exposure to the tragedy in Houston is conservatively estimated at several hundred billion.  Insurance companies off-load a lot of risk exposure using derivatives.  The potential counter-party default risk connected to this could dwarf the defaults that triggered the AIG and Goldman Sachs de facto collapse in 2008.   The stock “market” should be down at least 20% just from the probability of this occurrence.  Forget the hurricane issue, Blackrock estimates that insurance investment portfolios could lose half a trillion in value in the next big market sell-off.  Toxicity + toxicity does not equal purification.  The two problems combined are the equivalent of financial nuclear melt-down.

Last night after the news had circulated of the missile fired by North Korea, the S&P futures dropped over 20 points and gold shot up $15.  As I write this, the Dow is up 50 points, the SPX is up over 3 points and gold has been taken down $20 from its overnight highs.  Yet the two catastrophic risks above have not changed in potential severity.   Pushing around the markets is another propaganda tool used by the Government in an attempt to control the public’s perception.  In the words of the great Jim Sinclair, “management of perception economics,” or “MOPE.”

The good news is that, while the systemic puppeteers can control the markets in general, they can’t control the individual parts.  There has been a small fortune to be made shorting individual stocks.  Today, for instance, Best Buy reported earnings that predictably “beat” the Street estimates but it warned about future sales and earnings.  The stock has plunged 11% from yesterday’s close.  The Short Seller’s Journal featured Best Buy as a short in the May 28th issue at $59.  The target for this stock is $12.50, where it was in 2013.  I recommended some January 2019 puts as high probability trade to hit a home run on this idea.

Other recent winners include Chipotle, General Electric, Tesla (short at $380), Bed Bath Beyond in December at $47 and may others.  The more the PPT interferes in the markets to keep the major indices propped up, the more we can make from shorting horrendously overvalued stocks that can’t hide from reality. There’s very few investors and traders shorting the market, mostly out of fear and the inability to do fundamental research.  The Short Seller’s Journal focuses on the areas of the stock market that are no-brainer shorts right now.  You learn more about this product here:  Subscription information.

I really truly look forward to every Monday morning when I get to read through your SSJ. Again, last nights one was great. I have added to the BZH short position and I have had a lot of success adding to CCA each time it has tagged its 200 dma from below. I have done it four times now and each time it has sold off hard within the next several days. I plan to do the same again if it tags it again this time as it has bounced again.  – subscriber feedback received earlier this week (James from England)

 

Is The Precious Metals Sector Set-Up For A Big Run?

I had not noticed until I looked mid-day today (Thursday, Aug 24th) and saw that the HUI index was above 200. It ended up closing just above 200. I want to see it hold above 200 dma and move higher from there before I get excited.  But the chart has become mildly bullish.  GDX, which is a larger representation of the large-cap mining stocks, looks even more bullish that the HUI:

I’m not big advocate of using chart “technicals” to forecast the next move in any market, but many traders, hedge funds and investors use them and they can become “self-fulfilling prophecies.” You can see that GDX (same with HUI and GDXJ) has been trending sideways since early February in a pattern of rrowing volatility. Chartists look at this as a pattern that predicts a big move in either direction. I’ve drawn in a white downtrend line through which the GDX appears to have climbed over. It’s also now above its 50/200 dma’s (yellow and red lines, respectively). I’m not ready to declare a “break-out” yet, but I’m feeling optimistic going into the eastern hemisphere’s biggest seasonal period for accumulating physical gold:

The gold chart above is a 2-yr daily for the price of gold as represented by the Comex continuous gold futures contract. Since April the price has been hitting its head on $1300. I remember when gold attempted to break above $400 in late 2003/early 2004. It took several attempts to get up and over $400. Around that time Robert Prechter had predicted that gold would drop to $50. How well did Prechter’s charts work then?

There’s one of many catalysts away from sheer eastern physical demand or an errant tweet
from Trump that can push gold a lot higher in conjunction with the U.S. dollar index quickly falling a lot lower. The most pressing issues currently are the rising geopolitical tensions between Russia/China and the U.S., the upcoming Treasury debt-ceiling battle and, what is becoming more apparent by the day, a deteriorating U.S. economic and financial system.

Speaking of physical demand, extremely negative ex-duty import premiums have been
observed in India. Many of you may have read standard gold-bashing propaganda pointing to that as evidence that India’s new sales tax is affecting gold demand. But quite the contrary is true. As it turns out, there was a loop-hole in the Goods and Services Tax legislation that scrapped a 10% excise duty on imports from countries with which India had signed a Free Trade Agreement. Currently Indian gold importers appear to be sourcing gold from South Korea, which enables buyers to avoid the 10% import duty entirely. Until the Indian authorities move to close this loophole, we won’t have good feel for how much gold is flowing into India until the official monthly statistics are released. Based on the import trend in June and July, there continues to be an usually large amount of gold imported into India this summer. It will likely pick up even more as we head into the India festival season this fall.

The above commentary is from the latest issue of the Mining Stock Journal.  For those of you with huge profit in Novo Resources, I provide some information about Novo that is not in the analyst reports.  It includes some technical information about the nature of the assay results produced up to this point.  The issue contains analysis in support of buying two primary silver producers whose stocks have been sold off well below their intrinsic values.   New subscribers get all of the back-issues.  You can find out more about the MSJ here:   Mining Stock Journal information.

Where Is The United States’ Gold?

A concocted public relations scheme – an event which resembled the annual Punxsutawney ground-hog viewing tradition –  in which the Treasury Secretary emerges from Ft Knox and proclaims, “the gold is safe” does not provide any evidence whatsoever.

On cue, Jim Rickards followed up with a half-baked apology for the unwillingness of the U.S. Government to force a bona fide audit of the public’s gold being “safekept” in the Fed’s custody.

Bill “Midas” Murphy asked my opinion on Rickard’s white washing of the topic:

This is why I don’t read Rickards. I don’t know what his deal is anymore. He was a front for the Pentagon’s goal to circulate the idea of the SDR replacing the dollar as the reserve currency. This is because they know the dollar is toast but the dollar is still the largest percentage share of the SDR so the U.S. would remain in control over the world’s reserve currency if it were to be the SDR.

Now Rickards has pimped himself out to Agora, which really devalued Agora in my opinion. And he’s ripping off the public with his gold letter subscription. Total scam.  I’ve had subscribers to my Mining Stock Journal tell me his subscription service is a farce.

He really butchered the truth there with that article. While it’s true that a gold leasing transaction does not have to entail the actual transfer of physical gold from the lessor to the lessee, often it does.  Goldman recently did a lease-style transaction with Venezuela that transferred possession of VZ’s gold to Goldman.

The U.S. would have to audit to the gold if the public forced the issue. Ron Paul tried several times to force the issue on behalf of the public and the Fed spent millions in lobbying money to get Barney Frank to quash Paul’s efforts. The Fed hired Linda Robertson, formerly a lobbyist for Enron, to assist with the effort to snuff out any attempt to legislate an audit. That’s why the Government has never ordered an audit of the PUBLIC’s gold. You don’t spend millions to derail legislation just because you’re worried it will elevate the importance of gold to the public. That’s complete foolish babble but coming from Rickards  makes it sound legitimate.

That’s Rickards’ modus operandi. Offer up some half-baked justification to support his argument because he knows a majority of his audience will nod their head robotically in agreement rather than question the assertion. Does he ever offer proof? Who are his military contacts? Why are we supposed to accept the legitimacy of his assertions with blind faith, especially considering that the “tracks in the snow” suggesting the contrary have been visible for many years. Certainly well before Rickards’ handlers thrust him under the spotlight of the gold investing, truth-seeking community.

As for the actual physical transfer of gold, if gold under the Fed’s control has not been used to satisfy eastern hemisphere delivery demands for several years, how come it took so long for Germany to get its gold bars back, allegedly? Especially given that it took Hugo Chavez just 4 months to repatriate 160 tonnes of gold that was held at several Central Bank vaults around western Europe?  From all accounts, the gold bars Germany originally sent to the U.S. for “safekeeping” after WWII are not the same bars that were returned, assuming they were actually returned.  Again, why does anyone accept with blind faith anything coming from any Government, especially the U.S. Government?

A small portion of the public, led by a high-ranking, long-time Congressman have demanded several times in the last decade to see bona fide evidence that the gold owned by the Treasury, which means the citizens of the U.S., is physically sitting in the various Fed vaults and is unencumbered by any form of counter-party claim. The fact that the Government refuses to do this can only lead to one conclusion – and it’s not Rickard’s half-baked apology.

This is a topic that was put to rest in my mind more than a decade ago.  Some of the gold may be physically sitting in the various Fed vaults “safeguarded” by the military, but most of it is now sitting in the form of refined kilo bars in Chinese vaults or as highly-prized gold jewelry draped around Indian wives.

To counter Rickards’ “military sources” reference, I received this email last night from a reader:

Back in February 2011, I ran into a Kentucky good ole boy who worked at Fort Knox in rural Kentucky. Fort Knox was also an Army Military depot as well as gold storage which it is/was famous for.

Several months before February 2011, the Army made a decision to transfer the Army Military Depot at Fort Knox to other military depots and my Ky guy no longer had a job and had to transfer and relocate to keep a Federal Gov’t job. So that’s what he did, he relocated and how I ran into him.

So I asked him…”Does Ft Knox have any gold there because I have heard there may no longer be any gold there.”

His response: “That’s been the rumor on the Base for some time…but the only people that would know for sure are the people who have clearance to get into the vault.” He didn’t have anything else to add or say because he worked on the military depot part of the base. But this is 6 plus years ago and I believe him because it just came spontaneously out of his mouth. It sent shivers down my spine when he told me this.

This is how I feel about what he said: People can’t keep a secret…just human nature….a worker can tell his spouse, a spouse can talk to a friend…and before you know it, it’s all around the base. Spreads like a wild fire. This is in rural KY so rumors and news like this will never get any national publicity legs so it just stays local.

The Debt Bubble Is Beginning To Burst

There will be numerous excuses issued today by perma-bull analysts and financial tv morons explaining away the nearly 10% drop in new home sales.  Wall Street was looking for the number of new homes, as reported by the Census Bureau, to be unchanged from June.  June’s original report was revised higher by 20,000 homes (SAAR basis) to make this month’s huge miss look a little better.  The primary excuse will be that new homebuilders can’t find qualified labor to build enough new homes to meet demand.

But that’s nonsense.  The reason that home builders can’t find “qualified” labor is because they don’t pay enough to compete with easier alternatives, like being an Uber driver, which can pay nearly double the wages paid to construction workers.  I had a ride with a Lyft driver, a family man who moved to Denver from Venezuela, who to took a job in construction when he moved here.  As soon as he got his driver’s license, he switched to Lyft because it was easier on his body and paid a lot more.  If builders raise their wages to compete with alternatives,  they’ll be able to find plenty of qualified workers but their profitability will go down the drain unless they raise their selling price, in which case their sales will go down the drain…which is beginning to happen anyway.

Toll Brothers, which revised its next quarter sales down when it reported yesterday, stated that new home supply is not an issue in the market for new homes.  No kidding.  I look at the major public builders’ inventories every quarter and every quarter they reach a new record high.

The real culprit is the record high level of household debt that has accumulated since 2010. The populace has run out of its capacity to take on new debt without going quickly into default on the debt already issued.  Mortgage purchase applications are a direct reflection of this.  Mortgage purchase applications declined again from the previous week, according to the Mortgage Bankers Association.  In fact, mortgage applications have declined 14 out of the last 20 weeks.  Please note that this was during a period which is supposed to be the seasonally strongest for new and existing home sales.  Furthermore, since the beginning of March, the rate on the 10-yr bond has fallen over 40 basis points, which translates into a falling mortgage rates.  Despite the lower cost of financing a home purchase, mortgage purchase applications have been dropping consistently on a weekly basis and at a material rate.

The NY Fed released its quarterly report on household debt and credit last week. In that report it stated, “Flows of credit card balances into both early and serious delinquencies climbed for the third straight quarter—a trend not seen since 2009.”

The graph above is from the actual report (the black box edit is mine). You can see that the 30-day delinquency rate for auto loans, credit cards and mortgages is rising, with a sharp increase in credit cards. The trend in auto loans has been rising since Q1 2013. The 90-day delinquency graph looks nearly identical.

I’m not going to delve into the student loan situation. Between the percentage of student loans in deferment and forbearance, it’s impossible to know the true rate of delinquency or the true percentage of student loan debt that is unpayable. Based on everything I’ve studied over the past few years, I would bet that at least 60% of the $1.2 billion in student loans outstanding are technically in default (i.e. deferred and forbearance balances that will likely never be paid anyway). In and of itself, the student loan problem is growing daily and the Government finds new ways to kick that particular can down the road. At some point it will become untenable.

The auto loan situation is a financial volcano that rumbles louder by the day. Equifax reported last week that “deep subprime” auto delinquencies spiked to a 10-year high. Deep subprime is defined as a credit score (FICO) below 550. The cumulative rate of non-performance for loans issued between 2007 and Q1 2017 ranges from 3% (Q1 2017 issuance) to 30%. The overall delinquency rate for deep subprime loans is at its highest since 2007. To make matters worse, in 2016 deep subprime loans represented 30% of all subprime asset-backed securitizations.

Combined, the percentage of auto, credit card and student loan delinquencies and rate of default is as big or bigger than the subprime mortgage problem that led to the “Big Short.” To compound the problem, the nature of the underlying collateral is entirely different. A home used as collateral has some level of value. Automobiles have collateral value but a shockingly large number of borrowers have taken out loans well in excess of the assessed value of the car at the time of purchase. Unfortunately for auto lenders, used values are in a downward death spiral. Credit card and student loan debt have zero collateral value.

NOTE: The stock market has not priced in the coming debt apocalypse nor has it begun to price in at all the upcoming Treasury debt ceiling/budget fight that is going to engulf Capitol Hill before October. The Treasury apparently will run out of cash sometime in October. Supposedly the Fed has a back-up plan in case the issue can’t be resolved before the Government would be forced to shut-down, but any scenario other than a smooth resolution to the debt ceiling issue will reek havoc on the dollar, which in turn will send the stock market a lot lower. In my view, between now and just after Labor Day weekend is a great time to put on shorts.

Should You Use Leverage With Precious Metals And Mining Stocks?

While I will maintain, until proven wrong by the test of time, that Bitcoin and Cryptocurrencies are nothing more than a temporary fad, investing with a long term outlook (20-30 years) gives the investor the best probability of generating life-style changing wealth.

William Powers, of MiningStockEducation.com, invited onto his podcast to discuss using leverage in precious metals and mining stock investing.  We discuss greed/fear, using margin with mining stocks, volatility, options, futures and the leveraged ETFs.

The problem for most investors, and the reason many have not made a lot of money – or might have lost money – in the precious metals sector is the inability to invest with a long term perspective.  Since 2001, gold has outperformed every asset class.  The mining stocks, in general as measured using the HUI index, have outperformed the Dow/Naz since 2001.

If your reason to be invested in a sector is still valid, there’s no reason to sell investments in that sector.  Have the reasons for investing precious metals as a hedge against a collapsing U.S. economic and political system, and thereby a collapse in the U.S. dollar, changed? Have the problems taking the U.S. down been fixed?  The answer is pretty obvious, which means you should be holding your precious metals investments, even if you bought them in early 2011.   In fact, if you bought then, you should be buying more now.  I know I have been adding to my holdings gradually since early 2016.

The next issue of the Mining Stock Journal will be published this Thursday.  I’ll be reviewing a junior stock that  has gone parabolic and a mid-cap producer that has been hammered hard but is poised to bounce back just as sharply.  You can learn more about the MSJ here – new subscribers get all of the back-issues:  Mining Stock Journal information.

America’s Supernova: The Final Stage Of Collapse

I started observing the slow-motion train-wreck in process in 2001 – a year removed from my perch as a junk bond trader on Wall Street and living several thousand miles away from NYC and DC in the Mile High City, where the view is a lot more clear than from either coast.

The United States has been in a state of collapse for several decades.   To paraphrase Hemingway’s flippant description of the manner in which one goes bankrupt, it happens in two ways:   slowly then all at once (“The Sun Also Rises”).

The economic decay was precipitated by the advent of the Federal Reserve;  then reinforced by FDR’s executive order removing gold from the citizenry’s ownership, the acceptance of Bretton Woods, and the implementation of what is capriciously termed “Bretton Woods Two” – Nixon’s disconnection of the dollar from the gold standard.  If you study the monetary and  debt charts available on the St. Louis Fed’s website, you’ll see that post-1971 both the money supply and the amount of debt issued at all levels of the system (public, corporate, household) began gradually to go parabolic.

I would argue the political collapse kicked into high-gear during and after the Nixon administration, although I know many would argue that it began shortly after the Constitution was ratified in 1788.  At the Constitutional Convention, someone asked Ben Franklin if we now had Republic or a Monarchy, to which Franklin famously replied, “a Republic, if you can keep it.”

Well, we’ve failed to keep the Republic.  Now the political, economic and financial system is controlled by a consortium of big banks, big corporations, the Department of Defense and a handful of very wealthy individuals, all of which are ruthlessly greedy and misanthropic.

The current political and social melt-down is nothing more than a symptom of the underlying rot – rot that was seeded and propagated by the implementation of fiat currency and a fractional banking system.  The erection of the Fed gave control of the country over to those with the authority to create paper money and issue debt.

And now the political and social clime of the country has gone from ridiculous to beyond absurd.  James Kunstler wrote a must-read piece which captures the essence of the Dickensian  societal caricature that has sprung to life before our very eyes (Total Eclipse):

What do you know, long about Wednesday, August 16, 2017, House Minority Leader Nancy Pelosi (D-Cal) discovered that the United States Capitol building was infested with statues of Confederate dignitaries. Thirty years walking those marbled halls and she just noticed? Her startled announcement perked up Senator Cory Booker (D- NJ) who has been navigating those same halls only a few years. He quickly introduced a bill to blackball the offending statues. And, of course, the congressional black caucus also enjoyed a mass epiphany on the bronze and stone delegation of white devils…

…Just as empires tend to build their most grandiose monuments prior to collapse, our tottering empire is concocting the most monumentally ludicrous delusions before it slides down the laundry chute of history. It’s as if the Marx Brothers colluded with Alfred Hitchcock to dream up a melodramatic climax to the American Century that would be the most ridiculous and embarrassing to our posterity.

I would urge everyone to read the entire piece, which I’ve linked above.   And now for America’s coup de grace, it has offered up “president Trump,” which by the way not any worse than the alternative would have been.  Rather, it’s another symptom of the cancer beneath the skin.

Empires in collapse are at their most dangerous to the world when they are on the brink of imploding.  I was discussing this with a good friend the other day who was still clinging to the brainwashing we received in middle  school history classes that “America is different.” This just in:  America is not different.

The Financial Times has written a disturbing – yet accurate – accounting of the current turmoil facing the White House and the world (America Is Now A Dangerous Nation):

The danger is that these multiple crises will merge, tempting an embattled president to try to exploit an international conflict to break out of his domestic difficulties…Mr Gorka’s flirtation with the idea that the threat of war could lead Americans to rally around the president should sound alarm bells for anyone with a sense of history…Leaders under severe domestic political pressure are also more likely to behave irrationally.

In commentary which reinforces my view presented above, the FT article closes with:

A final disturbing thought is that Mr Trump’s emergence increasingly looks like a symptom of a wider crisis in American society, that will not disappear, even when Mr Trump has vacated the Oval Office. Declining living standards for many ordinary Americans and the demographic shifts that threaten the majority status of white Americans helped to create the pool of angry voters that elected Mr Trump. Combine that social and economic backdrop with fears of international decline and a political culture that venerates guns and the military, and you have a formula for a country whose response to international crises may, increasingly, be to “lock and load”.

The current “everything bubble,” fueled by the creation of massive amounts of fiat money and debt issuance is America’s “supernova.”  It’s the final explosion of fraudulent currency printing and credit creation.   I sincerely hope that when the pieces hit the ground, there will be enough material with which the original Republic can somehow be reconstructed.

 

Shorting Stocks Will Outperform The Market

On December 1st, with a short-sell report I wrote on L Brands (LB) and published by Seeking Alpha (note:  that was the last article I submitted to Seeking Alpha – you can now find my work on Simply Wall St.)that I used to launch the Short Seller’s Journal, I explained why L Brands was a great short idea at $96.  Here was my rationale:

L Brands (NYSE:LB) is a specialty retailer that operates the Victoria Secret and Bath & Body Works chains. It also operates La Senza, a Canada-­based intimate apparel retail concept, and Henri Bendel, a high­end accessory products brand. The stock has run from under $7 in March 2009 to its current (November 27) price of $96.68. In that time period, it has outperformed the S&P 500 by over 350%. But, in the context of rapidly slowing revenue growth, declining operating margins, increasing financial leverage and a likely pullback in consumer spending, LB’s stock is extremely overvalued relative to its underlying fundamentals and relative to its peers. In my view, LB represents a compelling opportunity to short the highly overvalued stock of a company operating in a business sector facing significant economic headwinds.

Here’s how the LB short performed from 12/1/15 to present, after reporting an pre-arranged “beat” of Wall St’s earnings estimates (the big game that has developed over the years is for management to “wink wink” walk Wall Street’s robotic analysts’ quarterly estimates down to a level below the actual numbers the company plans to report) but was forced to warn about the rest of the year:

As you can see, shorting LB on December 1, 2015 has significantly outperformed the XRT retailer ETF. It has also outperformed going long the S&P 500 by a factor of nearly 400%. Nothwithstanding what to me was the onset of a consumer spending recession and an obviously overvalued stock market, LB at the time was overvalued relative to both the stock market and the retail stock sector:

The traits specific to LB, and that is based on information that is freely available to anyone who is motivated to do the research, included:   a stock priced for perfection, aggressive debt issuance to finance huge share repurchases, heavy insider dumping of shares into the share repurchases and a stock valuation far in excess of industry peers.

Despite the inexorable grind higher in the Dow, SPX and Nasdaq indices, hundreds of stocks are either at 52-week lows are getting ready to embark on a “price-seeking” mission to find their 52-week lows.  Just ask the Dick’s Sporting Goods (DKS) or Advance Autoparts (AAP) bulls.  LB, DKS and AAP are examples of stocks will get cut in half at least two more times in the next 12-18 months.

The Short Seller Journal was launched with the goal to expose the truth about the stock market and the truth about the manipulated economic and earnings reports fabricated with the intent to support the most over-valued stock valuations in history and, more important, to use those truths to find short-sell ideas that will outperform long strategies. LB is an example of the types of ideas uncovered by the Short Seller’s Journal.

You can learn about this newsletter here:  Short Seller’s Journal information.  There’s very few, if any, newsletters that focus on shorting the market.  The best time to invest in a market theme is when the rest of the market is doing the opposite.  As a testament the quality of the Short Seller’s Journal, the subscriber turnover rate is remarkably low. There’s no minimum required subscription period and subscribers receive a 50% discount to the Mining Stock Journal.