Category Archives: U.S. Economy

“Gold Is Money – And Nothing Else”

– JP Morgan on December 18, 1912 in testimony to Congress

Crush The Street’s Kenneth Ameduri invited to discuss why I believe the current stock market is the most overvalued in history.  We also chatted about the movement by western Governments to a digital currency system and, of course, the precious metals market.  It’s my view that the pullback in the precious metals sector that began in late July was over by the end of December.  I also believe that there’s good probability that the next move in the sector will be more powerful than the 2016 move.

You can listen to our conversation here:

If you want to have access to my proprietary precious metals market analysis and junior mining stock ideas you can subscribe to the Mining Journal with this link:  MSJ Subscription Link.   The subscription is email-based and new subscribers get all of the back-issues.  The next issue will be published Thursday this week and I have an extraordinarily intriguing high risk / high return, 10-bagger potential stock idea.

 

Trump Dump Coming To The Stock Market

The stock market shot up like a Roman candle for idiotic reasons after the election.    The candle may have reached its apex when the Dow hit 19,999.67 last week.   As I stated in my Short Seller’s Journal, I was “stunned that bank traders were unable to push the index up to the holy grail number of 20,000.   Of course, in and of itself, the “Dow 20k” watch was moronic.  Thirty stocks do not an economic system make.  Sorry Fox, CNBC, Bloomberg, CNN etc.

I also stated in my Short Seller’s Journal, in the issue two weeks ago,  and long before Zerohedge posted the comment from some guy named DeMark who predicted the Dow would never hit 20k, that 20k might not happen.  In fact, I titled the issue, “Is Dow 20,000 Now Out Of Reach?”

The “Dow 20,000” financial media promotion has bordered on vulgar.  Fox Business (which I keep on mute at all times) kept a “Dow 20,000 watch” banner at the bottom of its broadcast during the entire trading day for the last 2 weeks of 2016.  It disappeared last week.  In the context of the entire stock  market and the U.S. economy, it’s meaningless for the Dow to hit 20k other than as a powerful propaganda tool.

The housing market is one of the most important segments of the economy.  The DJ Home Construction Index is down 9.7% today from its 52-week high in July.  Retail spending may be even more critical to generating GDP than housing.  The XRT retail ETF is down 9% from hits 52-week on December 8th.    This stock index has literally tanked during a period of time that is supposed to be the best seasonal period of the year for retail sales.  There’s a serious message there.   THAT’S where the rubber meets the road – not from meaningless platitudes and soundbytes from a President-elect.

Essentially Trump promised on election night to spend trillions and cut taxes deeply and to pay for those  based on borrowing trillions. These are  policy proposals that are destined to fail from the moment the words left Trump’s mouth.  But the stock market went nuts to the upside, culminating in what I would argue – based on using “apples to apples” accounting comparisons – the most overvalued U.S. stock market in history.   Perhaps in the modern era only the Weimar German and Zimbabwe stock markets were more overvalued.  Stay tuned because I am very confident that the Fed is not done printing trillions.

This is not the kind of stock chart in which I would want to be invested:

Yes of course this stock market could break up or down. But since Christmas, every attempted assault on 20k has been rejected. And the Dow opens higher every morning only to sell off every afternoon into the close. Monday was a perfect example.

Today (Tuesday, January 11) it looked the Dow was going to make another assault on 20k. But during Trump’s highly anticipated press conference, the Dow sold down hard from 19,970 to 19,840.  That is a preview of what is likely coming in the months ahead, as the U.S. economic fundamentals continue deteriorate, notwithstanding the barrage of economic fake news coming from the Government and certain industry pimp associations.

If you like the analysis laid out above, you can get similar commentary with even more in-depth analysis and research by subscribing to my Short Seller’s Journal.   I also present at least two short sell ideas along with ideas for using options.

I am a subscriber to both of your journals. I just want to say “WOW” to this post on your site. Thank you for all your work. As a financial professional of 28 years’ experience, I can tell you why there is no churn in your journal subscriptions. Your work is extremely sound and well done even in a massively
manipulated environment. – subscriber “Kevin”

Most Overvalued Stock Market In U.S. History – Here’s Why

I find it to be mind-blowing when financial advisors and stock market gurus get in bubblevision or write Seeking Alpha articles and assert that the stock market is good “relative” value right now.   They are either dishonest, unethical or just stupid.  Likely a combination of all three in varying degrees.

Here’s a chart with which everyone is familiar:

Based on that graphic, it looks like the current stock market is only the third most overvalued in history, right? WRONG.

The problem comparing the current p/e ratio of the S&P 500 with that of previous stock bubble tops is that the accounting used to produce the “e” is not comparable. Over time, FASB and the SEC have colluded to make it easier for companies to hide losses and report non-cash income as GAAP cash flow and earnings..

As an example, in 2010 FASB issued a bulletin which changed the way big Wall Street banks were allowed to account for bonds and other forms of debt issued by others that are held as assets. Originally, banks had to market their bond/debt/loan holdings to market and accrue any market to market gains or losses at quarter-end as either income or expense. FASB decided to let banks classify any and all debt as “hold-to-maturity,” and allowed banks to hold this debt at face (maturity) value without ever marking to market. Any debt that was marked below maturity value (par value) could be marked up to par and moved into a “held to maturity” account. By doing this, the banks created non-cash gains in these holdings that was counted as income. Banks hold $100’s of billions in bonds/loans and, starting in 2011, this rule change allowed banks to create billions in phantom, non-cash income. This of course translates into lower p/e ratios.

There’s several areas of accounting over the years that have accomplished a similar feat for all publicly traded companies. The problem is that it has rendered p/e ratios over time incomparable. Of course, NO ONE points out this fact and certainly any Wall Street analyst would be fired if they went on a truth tirade. The bottom line is that, looking at the p/e ratio graph above, we don’t know how the current p/e ratio for the SPX compares with the p/e ratios at the market peaks in 2007 and 2000 and 1929. What we do know is that the current p/e ratio is significantly understated relative to the p/e ratios in 2007 in 2000 because earnings are overstated relative to those years because of the accounting gimmicks that enable companies to boost GAAP non-cash earnings.  It could be that the current p/e ratio is the highest on record if we could make an “apples to apple” comparison of p/e ratios across time.  In fact, I would assert that applying standardized GAAP across time would prove that the current market is more overvalued than at any time in U.S. history.

The above analysis is an excerpt from my latest issue of the Short Seller’s Journal.  In this issue I presented two retail stock ideas for shorting.   One of them was down 3.7% today and the other was down just under 1%.   In the past couple of issues I have explained in detail why the retail sector is short opportunity right now.  But that window will close quickly as more companies do what happened to Macy’s and Kohl’s last week.    You can get more details on the SSJ and subscribe clicking on this link:   Short Seller’s Journal.

Fake Economic News + Overvalued Stocks = Recipe For Market Disaster

Think you know what will happen this year?  What would you have said to me on January 1st last year if I told you:  ” the S&P 500 would hit several new all-time years this year and Donald Trump will be elected President?”

Craig “Turd Ferguson” Hemke invited me on to his “A2A” webinar with his subscribers last week.  We had a spirited and (I think) entertaining discussion about abundance of fake economic news that permeates the financial media, the true state of the U.S. economy and the growing risks to the stock market.  And of course we chatted about precious metals an mining stocks.

And of course his subscribers had some interesting and thought-provoking questions. You can listen to our conversation here:  A2A with Dave Kranzler and you can access Turd’s webite here:  TFMetals Report.

Stewart Dougherty: Government Bail-Ins, Asset Confiscations And The Gold Sword Of Self-Defense

[Preface: In Part 1 of our report, “Goldman to Trump: Situation Assessment, Government Bail-ins and the Precious Metals Threat,” we inferred what Goldman Sachs’s second in command Gary Cohn might have said to President-elect Trump during their meeting on November 29, 2016. Cohn met again with Mr. Trump on December 2, 2016, and this time, we have inferred that he was accompanied by a second person. Here is Part 2 of our intuited, fictional report.]

Mr. Cohn: It is a pleasure to see you once again, Mr. Trump. I have been pre-empted. I was asked by important friends of our firm to introduce to you their envoy, Dr. Hugo Ehrlich. I can vouch for the fact that he represents extraordinarily powerful people with whom you will be working closely going forward. Let me turn it over to Dr. Ehrlich so he can explain.”

Dr. Ehrlich: “Thank you for meeting with me, Mr. Trump. Our time is short, so let’s respect it and get straight to business.

“I represent a global, privately held corporation known as Globanque. I doubt you have heard of it; we have a strict code of secrecy and silence. Globanque’s Directors would like to congratulate you on becoming president of the largest corporation in the world, the United States Government. Globanque, which owns the Bank for International Settlements and has meaningful stakes in numerous governments and other corporations, is also the majority shareholder of USG, Inc. Our friends at Goldman are intimately familiar with USG, Inc.’s ownership structure, because several years ago they helped Globanque acquire its controlling interest of your nation.

“While the Globanque Board does not wish to be disrespectful, a point of clarification is in order: the Directors would like me to note that the CEO and Chairman positions at USG, Inc. are distinct from yours, and that the executives are appointed by Globanque. The names of the incumbents are confidential, for reasons of optics and security. We doubt that the American people would understand why the two most powerful positions in what they mistakenly believe to be ‘their’ government are held by people whose names they have never heard of, and whose faces they have never seen. Perhaps in due course you can come meet your colleagues in Basel, and play a round of golf with them so you can get to know one another.

“If we were to portray USG, Inc. in geometric form, it would take the shape of a pyramid with a razor thin top and a very wide base. The base would represent the people, whom we ask to pay all the company’s bills. The middle would reflect the government staff who handle day-to-day logistics and the enforcement personnel who ensure the people don’t get out of line. And the top would represent the very few shareholders and cronies who control the corporation and make all the money. It is a fitting shape for USG, Inc., which happens to be the largest pyramid scheme civilization has ever known.

“In addition to being the largest corporation in the world, USG, Inc. is also the most profitable. You are looking at me quizzically, as if to say, “How can a corporation that is losing more than $1 trillion per year (as reflected by its deficits) be profitable? I’ll explain.

“While USG, Inc.’s deficits might look like losses, they actually represent dividends paid to its owners. Last year, the corporation had over $1,000,000,000,000 in deficits, which in fact were payments to Globanque and the other shareholders. The payments are made in many ways, including interest on the corporation’s massive debt; military contracts for contrived, enormously profitable wars; a broad variety of government contracts extended to cronies; so-called foreign aid which actually constitutes disguised payments to affiliates; and dozens of other ways to compensate insiders. USG, Inc. spends trillions of dollars each year, and no one really knows where all the money goes, even though the corporation does a good job of creating the impression that its accounting is accurate, which it is not.

“The deficits, in other words the shadow dividends funneled to shareholders, are funded by debt, which relentlessly rises at USG, Inc. The deficits and the debt increases move in unison. Dividends are extracted, and debt is injected. Forensic accountants would have a different term for this capital extraction; they would call it looting. Which is why forensic accountants are not permitted anywhere near USG, Inc.’s books. The corporation’s actions, just like those of the Fed and BIS, are completely immune from formal or actionable audit.

Over the past decade, more than $12 trillion dollars have been paid out by USG, Inc. in the form of dividends, making the shareholders extraordinarily wealthy. There has never been a dividend payout of this magnitude in commercial history. As you might imagine, Globanque spends a great deal of intellectual capital figuring out how to keep this trillion plus dollar game going. If USG, Inc. were to fail, it would be virtually impossible for Globanque to replicate it, and its earnings would be punished. Globanque’s Directors are not going to let that happen, if there is any way they can prevent it. If this means human casualties, so be it. They are people who do whatever it takes to win, with emphasis on the world whatever.

“There is a problem that concerns the Directors. There are unmistakable signs that the United States is approaching a state of what we call Peak Debt. While up until now we have had no problem saddling USG, Inc. with an ever expanding mountain of debt, and while we had planned on adding an additional $10 trillion of it during the next eight years or so, a faint but foul scent of debt revulsion seems to have seeped into the air.

“If we are not persistently able to increase USG, Inc.’s debt, it will become obvious that the company is bankrupt and that there is no viable means whatsoever by which to save it. USG, Inc. will have to be dissolved.

“The Peak Debt problem is compounded by the fact that in our view, the probability of a 2008/09-like financial crisis or worse occurring in the United States and beyond during the first two years of your presidency is close to 100%, which will hurt and possibly crush tax receipts. Therefore, there would be less money coming into USG, Inc. from taxes and debt issuance, a rabbit punch that would throw the corporation into a financial crisis.

“We have simulated in detail every possible response we might make when these problems manifest themselves. In the past, several temporary fixes were available to us, and we used them. But they were like bullets; they could only be shot once. Now, the ammunition box is empty, save for one remaining shell. Which is the outright confiscation of the people’s wealth in order to fund USG, Inc. and keep it alive; in other words, government bail-ins. We realize this measure is extreme and will be socially incendiary, but it is literally the only remaining option open to us next time around.

“The bad news for us, the dirty secret that must be kept a secret at any cost, is that as things stand right now, the people hold all the cards. The good news for us is that they don’t know it. If they were to understand and exert the financial power they possess, they could not only avoid the government bail-ins that are going to financially wound and ultimately impoverish them, but guarantee for themselves a level of financial freedom and personal well-being unmatched by anything they have ever before experienced. But they do not understand, at least not yet, and therefore they do not act. We need to keep it that way.

“The solution of which I speak is extraordinarily straightforward, and while it might sound simplistic, we at Globanque are almost certain it would work: for them, not us. All that the people need do is convert a portion of their digital fiat currency into precious metals. Now, while they still can. If they were to convert a mere 2% of their bank balances, roughly $200 billion, into gold, this would produce incremental demand of 167,000,000 ounces, assuming a price of $1,200 per troy ounce, which it won’t be for long. But incremental demand of that magnitude would obliterate supply, and prices would have to increase, possibly surge. This would convince many more people that it is a good idea to convert bank balances into real money. Which would lead to more buying, driving prices even higher. Ultimately, this could lead to a buying stampede, which is the exact last thing USG, Inc. and its fraudulent, exploitive banking system can withstand at this time. Such action by the people would deal a deadly blow to our strategy, which is to trap their money within the banking system, which we control, and keep it available for expropriation.

“We need to prevent the people from seeing the simple financial solution that is right before their eyes. It is vital that we keep them from moving their liquid assets outside of the banking system, either by withdrawing cash or purchasing precious metals. Accordingly, we have dramatically intensified actions designed to severely restrict or make it outright impossible for them to redenominate their liquid bank assets. The campaign is named “Operation No Exit,” and I will summarize some of its more important components.

“In Europe, we are radically expanding the definition of “cash” to include prepaid Visa, Eurocard, MasterCard and American Express cards, in addition to prepaid Merchant Gift Cards. Additionally, precious metals are being re-defined as cash. By including prepaid cards and precious metals under the “cash” umbrella, they will become subject to existing and soon to be broadly expanded controls. These cash equivalents will be confiscable on demand by authorities, with no probable cause other than suspicion of some kind of illegal activity or intent, which of course they can just invent.

“Prepaid cards present opportunity because we have rolled out and are perfecting a powerful technology known as ERAD: Electronic Recovery and Access to Data. ERAD devices enable us to swipe any prepaid card and determine its available balance. We can then instantaneously transfer that balance to the specific government bank account programmed into the ERAD terminal. The transfer is irreversible, so there is nothing the card holder can do about it.

“ERAD terminals also enable us to swipe bank-issued ATM, Visa Debit and MasterCard debit cards, determine the cardholder’s exact bank balance, and then seize that amount, in whole or in part. Banks’ daily withdrawal limits will not apply; they are superseded by ERAD. So we could instantaneously remove $100,000.00 from a cardholder’s bank account in one step, if the money were there. This is not a “future” technology, Mr. Trump; ERAD is already operational, and the technology improves every day. You can Google it, if you’d like.

“Several years ago, we expanded the Civil Asset Forfeiture program in the United States. This was a daring step, because CAF completely shreds the most basic and fundamental protections guaranteed by the Constitution. It is unique in that the victim, in other words, the person whose assets have been confiscated, is presumed guilty until they prove themselves innocent via an extremely complicated, specialized and costly legal process for which they themselves must pay. Which is often impossible for them to do, because in many if not most cases, the money they require to retain an attorney has been seized. Few attorneys will even touch a CAF case, due to its byzantine legal technicalities and hurdles, so those who will routinely charge $2,000 per hour or more. Most victims are therefore unable to legally fight for the recovery of the funds that have been stolen from them, resulting in a windfall for the seizing agencies. Which gives the agencies an increased incentive to further expand their CAF activities.

“We expected a strong backlash to CAF. But the fact is, there has been very little, other than from some of the victims. Certain courts have judged the method to be legal, which of course makes no Constitutional sense whatsoever. Those verdicts were only rendered because we paid or extorted judges hearing critical cases to legally ratify CAF. Given the unexpected success of CAF in the United States, we are rapidly expanding it throughout the west, particularly in Europe, where until now the practice has been illegal. CAF is a swift and efficient means by which to seize assets. It also enables us to zero in on specific targets, such as people we know to possess wealth.

“In 2013, we launched Operation Choke Point in the United States, a program that forced banks to summarily discontinue doing business with companies we wanted to cripple and shut down, including gun, ammunition and precious metals retailers. Unfortunately, the implementation of Operation Choke Point under Eric Holder was heavy-handed and sloppy, and it did generate some backlash. The Justice Department was forced to take a pause 18 months later, at least publicly. The program is still very much alive, and we are making the electronic processes more effective. Our objective is to be able to financially disconnect from the banking system and destroy any business that presents a threat to our agenda. If, for example, we cannot get gun control via the courts, then we can simply have the banking system impose it, by financially shutting down the dealers.

“In the United States, we have contracted with the Group of 30 to begin the process of demonizing and eliminating cash. Summers, Rogoff and Krugman are the principle spokespersons for this part of the campaign and we are paying them very well. They have all written articles, and Rogoff has written a book arguing that cash is a menace to society and that it should gradually be eliminated. They posit that drug dealers, terrorists and other undesirables use cash; therefore, it must be banned. There is literally no end to that kind of reasoning, which is exactly why we like to invoke it. By their logic, automobiles, gasoline and food should be prohibited, too, because drug dealers and terrorists drive cars and eat. The cash elimination campaign is based on Goebbels-style propaganda and demagoguery, but history proves that such techniques work, so we gladly use them even when the arguments are ridiculous. Currency elimination is a critical part of “Operation No Exit,” because it forces people to either spend their money, which produces tax revenue, or keep their money in banks, which are digital prisons that we guard and control, and that we intend to lock down when the time comes.

“The ECB is actively pursuing the cash elimination agenda in Europe. They have already stopped production of Euro 500 notes, and all existing Euro 500 notes are being segregated and destroyed if they are deposited into the banking system. Euro 200 and 100 notes will be eliminated next, then the 50s. Ultimately, there will be no cash in Europe. This goes for Australia and New Zealand, as well, where we are making gratifying progress. Control-freak bureaucrats are a Godsend to us.

“Sweden has actually stated its intention to be completely cashless within the next two years or so, which has been helpful to our agenda. We like to work with politicians and bureaucrats in smaller countries, because they can be bought off for less money than those in the bigger countries. We are having similar success in Uruguay, which is regarded as the “Switzerland of South America.” A lot of South American money finds refuge there, so it is an important country for us.

“Everyone knows about India by now. Modi was specifically instructed to conduct the Indian currency demonetization in a slow, methodical manner, as recommended in Rogoff’s book and as Draghi is doing it in Europe. Raghuram Rajan, former head of the Reserve Bank of India informed us that Modi was being pig-headed and would not listen. He wanted to be theatrical so as to look to the Indian people like a great crusader in a righteous cause. He is also a believer in the Politics of Envy, and told the phalanxes of poor Indians that he was rooting out the corrupt wealth of the rich. The hopeless love to hear that their oppressors are being taken down, even if what they hear is a lie. Rajan could not control Modi, so we airlifted him out of India and installed him at the BIS, as Vice Chairman. He will manage Indian recovery operations from there, and remains an important steersman for the overall agenda.

“By acting rashly and stupidly with his wholesale currency demonetization that has wreaked economic and personal havoc throughout India, Modi did severe damage to our cash elimination plans. His actions have provoked broad skepticism throughout the world about the risks of government-monopoly-controlled currencies and private, for-profit central banking systems. This has come at the exact wrong time. We need the people to have blind faith and confidence in fiat currencies and the banking system, because we need bank deposits to be at peak levels when we enact the government bail-ins. Time is already repairing the damage; it always does, as the memories of those struggling simply to survive are predictably short.

“Obama has immeasurably aided our cause by broadly expanding the provisions of the NDAA, which gives the U.S. government dictatorial powers over the people on any pretext whatsoever, even if the pretext is 100% fabricated to fit an agenda. If the American people actually took the time to read the NDAA, they would think they had been transported back in time to Stalinist Russia or Maoist China, but of course, they don’t take the time. They are too busy shopping, watching sports, gorging at all-you-can-eat buffets and texting mind-numbing gossip, which is exactly what we want them to do.

“We are rapidly introducing NDAA-like legislation throughout Europe, Australia, New Zealand, Canada and parts of South America. When the crisis occurs, we will be able to lock down much of the world in a matter of a few hours. Far too little time for the people to be able to react or protect themselves in any effective manner. We have financial interests in and influence with most of these governments, so progress is swift.

“In that our remaining time has grown short, it is not possible for me to go into detail about companion initiatives such as FATCA, Fusion Centers, FinCen, new financial disclosure requirements in Greece that will soon to be extended throughout Europe, FBARS, data collection and sorting projects such as Echelon and Prism, or any of the literally hundreds of additional steps we are simultaneously taking to convert to a 100% digitized economy fully subject to our control. But I can assure you that these efforts are synchronized, global and highly effective.

“Let me just say that the true purpose of the NSA’s Utah Data Center is to create an electronic dossier on all American citizens, with a particular focus on their financial affairs. The UDC will know exactly what assets they own and where, their earnings from all sources, their spending patterns, their medical condition, the medicines they buy and take, the foods they eat, their hobbies and travel patterns, their addictions, the social networks they use and what they say on them, the emails they send and read, the Internet searches they conduct, the people they call and text, the people they see, and in particular, anything they do that compromises them and makes them susceptible to special forms of extortion and/or control. The slightly longer term objective is for the UDC to be able to predict people’s behavior. In this way, we can neutralize targets before we expect they might go into action in some inimical way.

“For us, the UDC’s most valuable innovation is the ability to financially turn people off, as if they were table lamps, should that be in our interests. By digitally decommissioning them, we can render them helpless in a world where all transactions must be made electronically, and cash no longer exists. Imagine if none of your payment cards worked, and there was no other way to make payments; if you could not buy gas or food, pay your utility bills, or eat in a restaurant; if your bank suddenly had no record of you whatsoever; if you had been completely erased from the digitized system that is the only means by which to function in society? In South America, they have a reputation for physically “disappearing” the undesirables; we are going to electronically disappear them, which will be far more efficient and deadly.

“We view it as highly unlikely that citizens will act out if they realize they can be turned off, like table lamps, not just for an hour or a day, but forever if we so choose. Now you exist; now you don’t. Poof! Gone! This will be a critical power for us to have during the government bail-ins; we will make it clear up front that anyone who opposes them will be turned off. And that we will not reactivate them. In time they will starve to death. So what?

“The UDC is being replicated throughout Europe, where significant wealth has accumulated over the centuries, which we plan to seize. The UK and Australia, too, are moving fast to deploy UDC technology in their countries. So there is much progress on many fronts.

“As you can see, this is a massive, multi-faceted, globally coordinated project. We estimate that within three years, the infrastructure for a completely digitized economy will be in place throughout the west. But during these three years, we are at extreme risk that the people will figure out what is happening, and take steps to resist it. Which would be very easy for them to do at this stage, as I pointed out earlier in my comments. We want their money, but at this point, they could easily remove it from our grasp. We are doing everything possible to keep them financially blind.

“The only reason we have been able to make the full-spectrum progress we have made, without any meaningful popular backlash is that the vast majority citizens don’t see the overall agenda. They read about one thing we’re doing in one area, another thing somewhere else, another thing in yet another place. But they are discrete data points and sightings. The people are too busy trying to survive to sit down, put all the puzzle pieces on the table, and then assemble them into the complete picture. If they did, they would be stunned and angry. And they would take action. But they don’t see the picture, they just see little fragments of it, so we are able to push on. When they finally do see it, our system will be in place and it will be too late for them to do anything about it.

“That summarizes where we are, but there’s one last thing. Our friends at Goldman are an important “boots on the ground” resource in for us here in the United States. We rely on them regularly. We do think you should bring Gary on board. Let him do his work from the inside. We will all be able to move a lot faster that way.

“Well, my time is up. It has been a pleasure speaking with you, Mr. Trump. I need to get back to Teterboro for the return flight to Switzerland; the Falcon and flight crew await. Next time we meet, I hope we won’t be so rushed, and that perhaps we can have a nice meal and let our conversation take us beyond business. There is more to life. With that, let me thank you again and bid you farewell for now.”

Ehrlich approaches the office door, then turns. “Something I almost forgot to mention. In the spirit of what they believe is going to become an excellent friendship, the Directors authorized me to share with you an inside tip, something they almost never do. They wanted you to know that they are buying gold in the millions of ounces. They think you should be buying, too. And particularly your children, whom they respect. It will be a home run for them, given the magic of time. Feel free to tell your kids to take a look at gold, but don’t tell them anything about our meeting. Your first loyalty test, my new friend.” He opens the door and is gone.

Trump turns to Cohn and says, “I guess the good Doctor’s just said ‘You’re Hired.’ I’ll get the process moving right away. And Good God, I had no idea all of this was going on.” The men shake hands and Cohn leaves the office.

[Seven days later, Donald Trump announced that Gary Cohn would become Director of the National Economic Council of the United States of America, one of the most powerful financial positions in the world.]

Stewart Dougherty is the creator of Inferential Analytics (IA), a forecasting method that applies to events proprietary, time-tested principles of human instinct, desire and action. In his view, forecasting methods not fundamentally based upon principles of human action are unlikely to be reliable over time. He is a graduate of Tufts University (BA) and Harvard Business School (MBA), is a 35+ year veteran of the business trenches and has developed IA over a period of 15+ years.

Auto Sales: The Fake Economic News Bubble

The headlines are reporting that auto sales in December hit a record, when looked at on a “seasonally adjusted annualized rate” basis.  No one questions the validity of the seasonal adjustments.   The average news consumer sees or hears the headline word-byte/soundbyte and that becomes the truth.   Fake economic news is another form of Establishment propaganda:   seduce the populace into believing what you want them to believe rather than presenting the truth.  It’s Jim Sinclair’s “MOPE:”  Management of Perception Economics.”

Along with the geopolitical and domestic political fake news epidemic is an epidemic in economic fake news.  Collectively it’s a “fake news bubble,”  with one of the highly insidious consequences of this bubble being the messy abortion otherwise known as the “Presidential election.”

Turning to the auto sales fake news, based on the SAAR estimates, automobile sales allegedly hit a selling rate of 18.2 million units in December.  But seasonal adjustments notwithstanding the facts, does the data fit the facts of the related areas of consumer spending?   By this I mean restaurant and retail sales.

Though not reported yet for December, restaurant same store sales declined 1.3% in November from October and dropped 3.3% from November 2015.  It was the ninth consecutive month of negative same-store sales and the worst decline since July.  Perhaps with constrained disposable income, consumers cut out restaurants to buy holiday gifts?

Looking at what we know about retail sales during the holiday period so far, First Data reported that holiday spending is up 2% vs. last year (through Dec 12).  Last year that number was 2.4%.  So there’s a deceleration in retails sales growth spending.   Cowen research reported that foot traffic at malls was down 10% in December through December 17th.  Granted online sales growth of 9% this holiday season is taking some mall spending away, but online spending represents only 8% of total retail sales spending.  I guess maybe consumers cut back on holiday gifts this year to spend $40,000 (average cost of a new GM car according the auto sales report) on a new car?

Finally, I cover two companies that provide subprime auto loans.  Both companies were reporting declining loan application volume in their last financial reports.  Interest rates spiked up 100 basis points during November and December, which means the cost of auto loans spiked up as well.   Even though auto lenders are reporting lowered loan application volumes, we’re to assume that – despite significantly higher interest rates – consumers decided to skip eating out and buying holiday gifts in order to buy a new car during December?

Does any of this make sense?  To make matters less believable and uglier, GM reported that its unsold inventory of cars sitting on dealer lots exploded to 844,942 cars in December, a nearly quarter of a million unit increase over December 2015.  Call me skeptical but I would suggest that a large portion of those cars sitting in dealer lots were counted as sales when the cars left the factory floor.

The likely source of “record” auto sales is in the “seasonal adjustments” that are applied to the data. Moreover, I would suggest that the data itself is suspect.  I would like to see a study that correlates a “sale” with the actual transfer of title to either an auto finance company or to a buyer who paid cash – i.e. tie a “sale” to an actual end-user taking delivery and driving off the lot.  THAT number, based on all of the related supporting evidence as detailed above, is likely a much different (lower) number than what was reported.

Trump Will Let The Bankers Continue Destroying The U.S.

About 30 days into Obama’s first term I predicted that, “Obama will eventually go down as a worse President than W, which is hard to do because W might be one of the worst Presidents in U.S. history.”  I am making the same prediction of Trump:  he’ll go down as a worse President than Obama.

I would surmise that a majority of Trump’s voters voted for Trump as a vote against Hillary. Many of them have expressed relief that “Trump is not as bad a Hillary.”   But, au contraire. The decision faced by voters was no different than choosing between liver cancer and pancreas cancer.

Trump promised to “drain the swamp.”  That was nothing more than a clever marketing slogan adopted by Trump’s team to galvanize the majority of Americans who felt betrayed by the Democrats, led by Obama, who beginning on day one back-pedaled and repudiated the policy platform on which he campaigned (anyone besides me recall these promises:  “I’ll close Guantanomo in the first 90 days”  and “I’ll eliminate the use of Executive Orders” and “I’ll repeal all of Bush’s surveillance Executive Orders”).

The Democrats I know have the memory of fruit fly because every one of them seems to have a case of selective memory.  Perhaps Obama’s most memorable promise, aside from universal healthcare (Obama’s version of which is collapsing before he leaves office), was his vow to clean up the corruption on Wall Street.  Of course, his Attorney General appointment for most of his Presidency was Eric Holder, a career Democratic operative who worked at the Covington Burling law firm.  Covington Burling is Wall Street’s “body guard” in Washington, DC.  Most people have never heard of Covington Burling, which is how it is intended to be.  CB is the real life version of Bendini, Lambert and Locke, the infamous mob law firm in John Grisham’s, “The Firm.”

A little trivia:  Holder, as AG for the District of Columbia in the late 1990’s, drafted the pardon letter for Marc Rich, the infamous tax-evader who fled to Switzerland, signed by Bill Clinton as he walked out of the Oval Office for the last time (Clinton’s reward was carnal knowledge of Rich’s wife, Denise).

While the politicians promised that Dodd Frank and the Consumer Financial Protection Bureau and other legislative reforms had made America safe from Wall Street, in fact the opposite is true.  The subprime mortgage bubble has been replaced by a nearly equally as large, if not more insidious, subprime auto debt bubble.  With the help of Obama’s Government-backed mortgage “reforms,” Wall Street banks have spawned another subprime mortgage and housing bubble.   Derivatives “reforms” did nothing other than enable banks to hide their criminal use of these highly profitable weapons of mass financial destruction.

In other words, the only “cleaning” up that was accomplished over the last eight years by Obama was removing the last remnants of transparency from Wall Street’s operations, as all of these so-called “reforms” have enabled the Too Big To Fail Banks to conduct their fraudulent activities further “off balance sheet.”

So Obama has left his successor with 100% more Government debt, a collapsing healthcare system that is unaffordable for most other than corporate fat-cats and the recipients of free medicaid (and of course for the Congressmen who are exempt from Obamacare and have their healthcare paid for by the public anyway) and a financial bubble that dwarfs the bubble that was popping when Obama took office.

The Wall Street problem for this country is going to get worse under Trump.  In some ways it makes sense.  Trump’s casino business was a product of Drexel Burnham Lambert’s junk bond juggernaut.  I know this because I traded all of the old Trump junk bonds which, by the early 1990’s, were trading at distressed levels.  Trump is a real estate guy and real estate guys love debt more than they love their mothers.  And Wall Street loves nothing more than to underwrite that debt loved by guys like Trump.  In other words, in some ways Trump is a slave to Wall Street as much as, if not more than, his predecessor.  Note that among the first words out of Trumps mouth when he claimed victory was a promise to take deficit spending to new levels in order to build out the infrastructure.  There’s only way to finance deficit spending…

Circling back to Trump’s promise to “drain the swamp,” I think most of us assumed it not only meant getting rid of the career politicians like Hillary Clinton who had become completely controlled by corporate/Wall Street interests but also getting rid of the elements that controlled them.  Most notably the Wall Street bankers ensconced throughout all levels of the Obama Government.

But Trump’s appointments, for the most part, suggest that Trump is merely “draining” the swamp of the Blue swamp monsters and is replacing them with Red swamp monsters.  And in reality, Wall Street monsters do not distinguish between Red and Blue. That’s because the god they worship is GREEN.    The latest proposed appointment is a Sullivan & Cromwell lawyer to head the SEC.   Sullivan & Cromwell is Wall Street’s most highly regarded legal operative in NYC.   Need anymore be said?

Will The U.S. Hit The Wall In 2017?

The parabolic move in the stock market, housing prices and the U.S. dollar, while touted by the media and Wall Street as evidence that “all is well and getting better,” is perhaps the most visible signals that the U.S. financial and economic system is “melting up” before it collapses.

Yes, I know the truthseeking community has been playing “Chicken Little” since the internet stock bubble days, and admittedly the powers that be have been able to extend and pretend for a lot longer than I would have bet on 15 years ago.

James Kunstler has written an epic year-end essay that is a must-read.  He discusses why 2017 may be the year of reckoning for the U.S. – here’s an appetizer:

When mortgage rates go up, house prices go down, because fewer people are in a position to buy a house at higher mortgage rates, and rents go up (more competition among people who can’t buy a house). Zero Interest Rate Policy (ZIRP), in force for ten years, has driven house prices back to stratospheric levels. They are now primed to fall, perhaps severely, leaving many homeowners “underwater,” with houses worth way less on the market than the amount of mortgage left to pay off.

You can read his entire piece here:   Forecast 2017:  The Wheels  Finally Come Off

In addition, take seven minutes and watch this video put together by Crush The Street (I’ll be a podcast guess this week and next week).  It’s an engaging seven minuted encapsulation of the fate that awaits the U.S.:

Goldman to Trump: Situation Assessment, Government Bail-ins, Precious Metals Threat: Systemic Collapse

A guest post from Stewart Dougherty. Stewart included some thoughts in his email to me that I thought should be shared as a preface to his essay:

——————–

Hi Dave:
Some pretty heady stuff, particularly the part about the Fed’s balance sheet being a lie. (I am 100% convinced of this, but cannot prove it, at least not yet.) And remember, Bernanke was caught issuing $10 trillion in swaps to foreign banks, all of which was supposed to remain a complete secret. It is not as if they haven’t been caught doing what I am saying they are still doing, to an even larger degree.

I’ve stated that the “conversation” is imagined, intuited and fictional, so the small living parts of the shredded Constitution might actually protect my freedom of speech; wouldn’t that be amazing.

I believe “government bail-ins” is fresh terminology … people hear about bank bail-ins all the time … but they don’t hear about government bail-ins, which are going to affect far more people and are inevitable. (As I’ll explain in Part 2, government bail-ins are not going to be about taxes … tax increases are too slow, and oftentimes don’t even work.) Since it’s new, the term government bail-ins might gain a lot of attention.

——————–

Despite Goldman’s avid support for Hillary Clinton, fewer than three weeks after the election, Gary Cohn, the number two executive at Goldman Sachs met privately at Trump Tower with the President-elect. Ten days later, he was named to one of the most powerful financial positions in the world, Director of the National Economic Council of the United States of America.

As they say, knowledge is power, and power is knowledge; both open doors, ears and minds when they decide to. What could Cohn have said to Trump that resulted in his near-immediate hire? Using the Inferential Analytics methodology, we have synthesized a message a visitor of Cohn’s stature might have conveyed to Trump on November 29, 2016. And while it is inferred, intuited and fictional, the following transcript is deeply grounded in the nation’s current and prospective fiscal, financial, monetary and economic situation.

The Visitor: “I appreciate your invitation and it is a pleasure to meet with you today. Permit me to convey Lloyd’s congratulations. He would like to assure you that you have Goldman’s full support going forward.

“Our time is short, so I will give you a very high level situation assessment. Thousands of person hours and millions of dollars’ worth of research and analysis stand behind each of the themes I will touch on, and we can provide additional details if you wish. As one of the U.S. government’s closest financial allies for decades, particularly when it comes to the placement of the nation’s sovereign debt, we have a deep understanding of the financial dynamics at work. When I use the term “we,” it is because Goldman and the United States government have been close business partners for many years.

“As you correctly stated to the American people during your campaign, the situation is not good. It is containable at this time, but only if we continue to run substantial deficits and create large sums of new dollars, in other words, debt. With all due respect, we believe the U.S. government is going to need our help as never before in the coming months and years.

“I will briefly touch on nine topics. There are others we could discuss, but these tell the most important part of the tale. They are: 1) Deficits; 2) Debt; 3) Reporting; 4) War; 5) Perception; 6) Stocks; 7) Money Creation; 8) Currency; and, 9) Precious Metals.

“As you may know, I started my financial career as a Comex trader, and Lloyd began his as a gold dealer at J. Aron, which was acquired by Goldman. We both have extensive experience in the Precious Metals markets, and believe they are going to be of incalculable significance in the near future. I will review this topic later.

“All I ask is that you not shoot the messenger. Much of what I tell you is troubling.

“First, the deficits are structurally non-containable. The OMB itself confirms this, projecting escalating deficits for the next 50 years, with not one year of surplus during that entire time. The aggregate deficit during the next decade alone will be at least $10 trillion. If there is a slowdown or recession, it will be greater or even much greater. The deficits can only be reined by a massive political reset and wholesale reneging on the entire social contract, including Medicare, Social Security, public pensions and welfare. Such a reset would result in an economic collapse. Therefore, it is not feasible, although it could be forced upon us by endogenous or exogenous events that would take the situation out of our hands.

“The debt has gone vertical, rising from $10 to $20 trillion in eight years. Obama created more debt than all other presidents in the previous 230 years, combined. This amount does not include the federal government’s net, unfunded liabilities, which are an additional $150+ trillion, and growing by trillions per year on a GAAP accounting basis. Please understand that his shadow, unfunded debt is net of projected tax receipts; in other words, it is completely out of control.

“Debt is now increasing at an accelerating rate, with $1.4 trillion added last year alone. This debt can never be paid in future dollars having value anywhere even close to today’s, but for now at least, we are still able to peddle it. We do know that for us to successfully distribute the debt in the future, interest rates will have to go higher, which will compound the fundamental deficit and debt problems. Otherwise, we will have to print money on a scale never before seen, which will further damage the value of the dollar. There is a limit to how badly currencies can be damaged; they can and do go into freefall. Several are, as we speak.

“The so-called economic recovery has been false. The Obama administration, with the full support of the Fed created $10 trillion in counterfeit dollars and threw them at the economy, funding everything including non-stop wars, Food Stamps, a vast expansion of government, subsidized Obamacare, solar panel cronies, fund-raising and golf trips, you name it. It’s all included in the nation’s deliberately and, frankly, fraudulently inflated GDP. We understand; it had to be done, and we helped make it happen by being expert debt pushers.

“Some like to think that we can grow our way out of the deficits and debt, but our analysis disagrees. Assume 4% GDP growth. Given an $18 trillion economy (ours is not, as explained above, but let’s say it is), 4% growth means a GDP increase of $720 billion in Year 1. Let’s say the federal government is able to collect in taxes 25% of the gross GDP increase, a wildly optimistic assumption. That would produce $180 billion in incremental revenue. But the structural deficits, as reflected by the increases in debt, exceed $1 trillion per year. Even 4% GDP growth will hardly make a dent in the fiscal hemorrhaging. And to prime the pump for such growth, the government will have to spend a few hundred billion dollars per year on infrastructure spending and the like. This will fully negate the incremental taxes. So we have to dig a deeper fiscal hole for the privilege of digging an ever deeper fiscal hole.

“This leads to topic #3, Reporting. At this point, out of necessity, virtually every government economic statistic ranges from being “massaged” to outright false. GDP is particularly misleading. If we deducted government deficit spending and the multiplier effects it creates, the United States economy would immediately collapse. If that were to happen, we cannot credibly forecast a scenario that would restore it to growth. Economically, it would constitute an existential event.

“Obviously, we cannot openly admit the reality of the situation, or even let it become known. Therefore, the government must doctor the reports. Given the interrelationships among economic reports, we now have to lie about everything. If we just lied about certain metrics, say, GDP and employment, then the other metrics, if not similarly fabricated, would contradict the fabricated reports. We would be unable to explain the inconsistencies and contradictions. We have to lie about unemployment, GDP growth, retail sales, wages, money supply, the cost of Obamacare subsidies, current deficits, current debt, the true fiscal trajectory of Medicare, Medicaid and Social Security, government pension underfunding, projected deficits and debt, and all the rest. When it comes to false reporting, we’re in a box; there’s no alternative to it.

“This is one reason why the Alternative Media are so dangerous to us, and why we need to eliminate them. There are many talented analysts in that domain. They know the truth, and that we’re not telling it. The fact is that fake news comes from us, not them, as they are revealing to a growing army of citizens.

“In addition to false reporting, there is War. War is just like the Fed; it is never audited. This deliberate lack of oversight is how $6 trillion can go missing at the Army, alone. The Army’s missing funds are a small portion of the total amount that has disappeared into the military spending vortex. War spending is critical to topline GDP, and we can play a lot of non-detectible games with it. The saying, “War is the health of the state,” was coined for us. If we stopped fighting wars, GDP would crater. Wars are a necessary constant going forward, even if we have to invent them.

“This brings us to Perception, one of the most important factors of all. In reality, the economy and dollar have become a confidence game. We know that if confidence in an inherently dysfunctional system is lost, only a reset plus time can restore it. But as we discussed earlier, a reset is socially, politically and economically impossible. If the 200,000,000 U.S. citizens currently dependent upon the government to some degree were deprived of even a fraction of their payments, economic and social entropy would result. In fact, the people want more, not less. Free college; free or massively subsidized health care; a $15 minimum wage; the list goes on. Politicians have told them they can have these things, so there is a vast disconnect between popular expectations and fiscal reality.

“Stock market indices are one of the few tools we can use to create positive perceptions. We have successfully created a false perception of economic health by taking stocks to new highs. We have also deliberately engineered a “wealth effect,” which has artificially spurred spending and GDP, and boosted the so-called “animal spirits.” Doing these things has disguised reality and bought us a lot of time.

“But the real reasons we have manipulated stock markets higher go further. First, without a levitated stock market, the pension funds would collapse. Which would ripple through the economy in a massively destructive way.

“Second, federal, state and local governments need the capital gains-related tax revenue produced by the artificially propped-up stock markets. Dow 20,000 will produce a 2017 tax windfall, which is required to offset the damaged economy’s tax shortfalls. The stock markets are a crucial money machine when it comes to tax generation.

“Now to money creation, which takes us deep into the Dark Side. To fund the massive deficits and levitate the stock market, we have had to create trillions of new dollars. But if the actual amount were revealed, confidence in and the value of the dollar would collapse. So we have to lie about this, too. The Fed’s balance sheet is actually trillions more dollars than what is reported.

“We inject newly digitized currency into the system by crediting trusted, proven collaborators such as the BOE, BOJ and Bank of Israel with dollar amounts that can range into the trillions, depending upon circumstances. These collaborators use a portion of these credits to buy our stocks and bonds, in accordance with strict timing, allocation and dollar amount instructions. They funnel the remainder of the funds to trusted, third-party actors, including hedge funds, merchant banks and dark pool operators, providing them, too, with specific deployment instructions. Therefore, the buying comes from many different markets and locations, which makes it look normal and legitimate.

“What exists is a small club of trusted players who deploy enormous sums of money, all of it counterfeit and undocumented, to support the positive perception, healthy GDP and strong stock market agendas. This money costs our partners nothing; we create it for them, out of nothing. The fact is that management of the dollar is far more clandestine than any of the operations conducted by the CIA or NSA, and the Fed is the most secretive and sophisticated intelligence agency on earth. Geo-financial hegemony is its mission, and dollars are its spies, operating, misdirecting and deceiving from the shadows every minute of every day, all over the world.

“While a large and increasing number of citizens now demonstrate broad skepticism about government institutions, they still have blind faith in the statistics reported by the Fed. Which is upside down, because the Fed’s figures are the most dishonest of them all. It proves the power of propaganda, particularly when billions of dollars are spent on it. If the Fed were subject to audit, which of course it deliberately and necessarily is not, none of this would be possible. And if the true size, composition and deployment of the Fed’s balance sheet were known, the entire global financial system would implode.

“That is the situation, in a nutshell. As you can see, it is fragile and untenable. We can continue to manage it in the current context, but if the context were to change, even in small ways, it could all come down. We have to prevent that at any cost because if it does come down, even our most sophisticated computer simulations cannot posit a scenario by which it could be propped back up.

There is a subtle knock on the office door. Trump realizes he is out of time. He says to his guest, “I understand what you have said, and need you to come back and finish.” They arrange for the visitor to return in three days, December 2nd. Trump asks, “So we can move as fast as possible then, please give me a brief outline of what we will discuss.”

The visitor responds: “Most people do not think about these issues at all, but the sophisticated ones do. We have deliberately misdirected that cohort’s attention. We have distracted them with talk of bank bail-ins and other financial gossip to keep their thinking off of what is actually a much more profound and necessary outcome: government bail-ins. We have before us a complex, four dimensional puzzle, in which the puzzle pieces represent events wrapped in time. Both the controlling elite and the people are putting the puzzle pieces in place as fast as they can, because they know their futures depend on it. The side that first completes and comprehends the puzzle will win; the other side will lose. Two of the most important puzzle pieces are currency and precious metals, both swaddled in time. Which is running out for one side or the other.”

[To be continued in Part 2]

Stewart Dougherty is the creator of Inferential Analytics (IA), a forecasting method that applies to events proprietary, time-tested principles of human instinct, desire and action. In his view, forecasting methods not fundamentally based upon principles of human action are unlikely to be reliable over time. He is a graduate of Tufts University (BA) and Harvard Business School (MBA), is a 35+ year veteran of the business trenches and has developed IA over a period of 15+ years.

Jim Cramer’s Christmas Gift To Short-Sellers

Wall Street’s best contrarian indicator has spoken. Jim Cramer issued a strong buy on the Dow last Wednesday. He references the “generals” that are “leading the charge” higher in the stock market.   He sees no end in sight to current move in market leaders. Those will prove, once again for Cramer, famous last words.   It will be more like Custard making his last stand.

Perhaps the most amusing section of his maniacal diatribe was his assertion that Goldman Sachs (GS) and JP Morgan (JPM) are “cheap” because of Trump. A colleague and I were, serendipitously discussing GS as a great short idea last week. Cramer is a bona fide lunatic who must relish the thought of leading the retail stock lemmings to slaughter. The financials have gone parabolic since the election and now the hedge funds who whisper sweet nothings into Cramer’s ear need an exit.   Please don’t give up your chair to the sound of CNBC’s Pied Piper.

The puts on JPM and GS are loaded with premium. I don’t want to recommend any specific put ideas.   If you have an interest in shorting shares, GS and JPM are among the best shorts in the Dow right now.

That was an excerpt from the latest issue of the Short Seller’s Journal.   Shorts are working again.   Four of the five short ideas in last week’s SSJ were down for the week (one was unchanged) – one retail idea was down 13.6% and the puts recommended were up 400%.  In fact, most of the short ideas since early August have been working, some better than others, with one them down nearly 40% since early August.

Beneath the facade of the Dow and the SPX, many stocks and sectors are down for year. For instance, the DJ Home Construction index is down 11.1% from its 52-week high early this year.  It’s 52% below its all-time high in July 2005.  The current SSJ presents an home construction-related stock that is technically and fundamentally set-up to fall off a cliff.  I also presented my for favorite homebuilder shorts along with put option ideas.

The SSJ is a weekly subscription-based newsletter.  It’s billed on monthly recurring basis with no required minimum subscription period.  Each issue is delivered to your email in-box and has at least 2 or 3 short ideas plus put option ideas.   New subscribers will receive a handful of the most recent issues plus a complimentary copy of the Mining Stock Journal.  SSJ subscribers can subscribe to the MSJ for half-price.  You can get more information and a subscription here:  Short Seller’s Journal subscription link.