Tag Archives: bear market

Global. Economic. Collapse. And The “Bernanke Moment”

The global economy, including and especially the United States, is collapsing.  It’s debatable whether or not the western hemisphere countries produced true inflation-adjusted real GDP growth from 2009 to present.   Yes, I know the numbers the U.S. Government’s BEA spits out purport to show “seasonally adjusted, annualized” economic growth.  But a book could be written detailing the ways in which the Government manipulates and outright fabricates the data.  John Williams of Shadowstats.com publishes a newsletter with highly compelling evidence.   Anyone who dismisses Williams’ work does so out of complete ignorance.

The Baltic Dry Index is one of the primary tell-tales of economic collapse.  It measures the BDIdemand for container cargo shipments of bulk raw materials used for all stages of manufacturing.  It’s been twisted into evidence that China is slowing.  But it tracks global shipments and the U.S. and Europe are China’s two biggest export markets.  If China is not shipping, it’s because there is no demand from it’s two biggest customers.  It’s really that simple.

Need another indicator of the collapsing U.S. economy?   The mass layoffs that occurred in 2008-2009 are starting to hit the system again.  We know the energy sector is shedding jobs quickly.  But the retail and financial sector are close on the heels of the energy sector with RPIjob cuts – LINK.    And all those bartender and waitress jobs that the Government alleges to have been created are to disappear again:   Service economy is tanking. But there’s always this graph to the left if you think I’m making this up.

The point here is that the entire global economic system is in a state of collapse.  I find it curious that the financial media and analysts in the United States want to blame the problem on the rest of the world, specifically pointing at the distressed debt market in China.

It’s not debt that weighs on economic growth. If debt issuance is required to generate economic growth, then the “growth” was not sustainable unless the growth could generate enough wealth to support the additional debt. Continuous systemic debt issuance is unsustainable and defies all natural natural laws of economics.  At its base level it’s nothing more than a simple Ponzi scheme. A simple Ponzi scheme is probably what best describes the modern application – or misapplication – of Keynesian economics. I guess it’s poetic justice that Keynes’ economic thoughts were adopted by U.S. policy-makers originally at the onset of the first Great Depression and have been reinvented and re-mis-applied at the onset of the 2nd and bigger Great Depression.

I find it fascinating that the U.S.-based financial propaganda incessantly obsesses on this idea that China is the cause of the world’s ills. This is nothing more than narcissistic jingoism in its “best” light.  But I prefer to see it as a form of yellow journalism seeded in pathetic ignorance. This article from the NY Times’ “Deal Journal,” for instance, references $5 trillion of troubled debt in China, calling it the world’s biggest problem. Hmmm…

Let’s shine just brief light on the United States. Currently the U.S. credit markets, enabled and partially backed by the Government, have now created over $1 trillion in student loan debt, at least 30% – 40% of which is in some form of technical default; over $1 trillion in auto debt, of which at least 30% can be considered of the toxic subprime variety and which I suspect will begin to collapse sometime during 2016; close to $2 trillion in junk bonds have been issued since 2009, with close to 25% of that in the energy sector, which is collapsing as I write this; since 2013, roughly $500 billion of new mortgage debt has been issue, a large portion of which is of the subprime variety masquerading as 3.5% down payment “conventional mortgage” debt. That’s $4.5 trillion of already or potentially toxic debt and that number does not include generic bank and revolving credit loans extended to consumers, small businesses and large corporations. We know already that the banking system is choking badly on a couple hundred billion of toxic energy loans.

The point here is that global economy activity – including the United States – is collapsing independent of the amount of debt sitting on top of the financial system. If the wealth created by economic activity was adequate to support the debt issued against the “hope” of economic growth, then servicing the debt would not be an issue.  But economic cycles never have been and never will be growth in perpetuity.   Unfortunately, the amount of debt issued since the advent of modern QE has taken a parabolic growth path.

We are about to be confronted with an economic catastrophe that will likely shock and awe just about everyone.  The amount of fatal debt piled on top of the global economy will have the effect of throwing thermate into a napalm fire.

The Fed knows this and it’s why a couple of the Fed officials, including the highly influential NY Fed President, have been floating the concept of negative interest rates in this country.  Think about that for a moment.  The policy makers are considering the idea of paying you to borrow money.  If that’s not an admission of defeat on the use of money printing to spur economic growth, I don’t know what is.   Not only are we at the Bernanke Moment of dropping money from helicopters (apologies to Milton Friedman, who’s notion was hypothecated and abused by Bernanke), but they want to pay you to catch the money falling from tree tops in order to spend it.   Man, this is going to get weird – I hope you are bracing for impact.

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Housing: “Business Is Slowing Down – Quickly”

There has been no improvement in underlying consumer liquidity conditions. Correspondingly, with no fundamental growth in liquidity to fuel increasing consumer activity, there is no basis for a current or imminent recovery in the housing market. – John Williams, Shadowstats.com

The title quote is from a supplier to the homebuilding industry in south Florida, which had been one of the hottest housing markets in the country.  He said his business has suddenly fallen off a cliff and development projects that had “been on the board” have been postponed indefinitely.  Isn’t it a lot better to get information about what is going on at “ground zero” in the housing market rather than from some snake-oil salesman who bills himself as the National Association of Realtors’ chief economist or the sleazeballs on the financial “news” networks?

Make no mistake about it, regardless of the degree to which you want to put faith in the “seasonally adjusted, annualize rate” home sales reports generated by the National Association of Realtors and the Census Bureau, the housing market is a 10 mile train skid on a nine mile track.

Something is blowing up big time in the banking system.  Everyone is talking about the interminably collapsing price of Deutsche Bank stock, but Bank of America, down only 2% right now, was down as much as 6% earlier today – same with Citi.  The price plunge in these banks occurred in absence of any news reports or events that to which the sell-off could have been attributed.

The BKX bank stock index is down 25% from its high in mid-July:

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While the entire U.S. financial media/community seems to be obsessed with the sell-off in Deutsche Bank stock, I’ll note that Barclays stock is down 50% from its 52 week high and Citigroup and Bank of America are down over 33% from their 52 week highs.   Because of the incestuousness that has developed in the monstrous derivatives market, all of these banks are genetically connected.   It’s really irrelevant which bank blows up first because when one goes, they’ll all go.

I am tying together housing and the big banks because the Central Bank money printing has reincarnated the housing bubble Frankenstein and the big banks – via the catastrophically massive Ponzi derivatives scheme – have been the transmission mechanism of printed money into the housing market.

The unexplained 25% collapse in the bank index is telling us that the financial system is melting down and that’s the most direct evidence that it’s not just a Deutsche Bank problem.  Perhaps DB is merely 2016’s “Bear Stearns.”

The entire global financial system, including and especially the U.S., is headed for a collapse that will be worse than what occurred in 2008.  In fact, it will be nothing more than an extension of an unavoidable collapse back then that was deferred with QE and Taxpayer money.  The concerted Central Bank move to take interest rates negative are telling us that the QE rabbit is no longer available to pull out of the hat.  Negative rates are telling us that the skidding train mentioned above is on the 9th mile of that skid.

A colleague of mine called me today and told me that he’s been monitoring the housing market activity on the west coast of Floriday, a previously white hot housing market.  He said inventory is up about 15% from year end he is getting a constant flow of “price reduced” emails. I am seeing the same thing and getting the same number of “price reduced” emails from the MLS-based website I use to track the Denver market.  And a reader posted this comment yesterday about Las Vegas, which also had been red-hot market for home sales and buy-to-rent schemes:

Supply is building quickly (no pun intended) and sales are in the toilet. Housing in going to be one of, if not the lead horses that take this economy down. A friend of mine who lives in L.A. and lives in Vegas 3-4 days per week for business, just rented a furnished luxury two bedroom condo with all utilities including cable and internet for $1250 per month. He also said that there were many choices available in the Las Vegas area. We are just at the beginning of the end.

Another Huge Reason To Short AMZN – The Perfect Contra-Bill Miller Trade

First of all, regard this as a warning to get your cash out of any funds at Legg Mason that are touched by Bill Miller.  The last time Miller was this bullish on stocks and AMZN, the S&P 500 collapsed from 1550 to 700 in 17 months.

Miller bills himself as a “value” investor.  Yet, currently he has the pools of money he manages at Legg Mason 10% invested in AMZN.  This just in, Bill, any stock that trades at a 425x earnings, 2.5x sales and 19x book definitionally is not a value play.  Miller’s current highly disillusioned view on the stock market can be seen here:  LINK.

Bill Miller’s claim to fame was beating the S&P 500 11 years in a row – until 2008 hit.  He did this by making highly concentrated bets in the hot financial sector stocks, homebuilders and hot momentum stocks like AMZN.  Nothing complicated there – certainly nothing Miller should have been earning $10’s of millions in fees on – go to the Blackjack table with the hot shoe and bet everything in your pocket on every hand.  Of course, eventually the shoe turns ice cold and the dealer wipes you out, quickly.

Fast forward to February 2009 and Miller had one of the worst 10-year track records in the industry.  He should have been investigated and barred from the industry.  Instead, he’s back to his same old tricks with a 10% bet on AMZN.  His fund at Legg Mason is down 20% for the month of January.  By the end of the year, I predict that all of the gains he may have achieved over the last 5 years will be wiped out and his investors’ accounts will be incinerated.

If anyone wants to understand why Miller’s position in AMZN is the ultimate example of reckless money management devoid of proper due diligence, you can see the truth in detail in my Amazon dot Con report.   I’m working on the 4th quarter numbers and will soon have an update, which will be available to everyone who has bought the big report.

Did The Stock Market Bottom Last Week? You Can’t Be Serious

Toward the end of last week, when the S&P jumped 58 points (3%) for the week, 46 on Friday alone.  The negative interest rate announcement by the Bank of Japan triggered the move on Friday.  Earlier in the week the bottom-callers in oil were on their megaphone proclaiming a new bull market in oil, which got the stock market permabull drones all giddy.  The trading action last week was entirely characteristic of a typical bear market short-squeeze rally fueled by momentum-chasing hedge funds and daytraders who had piled into the short side of the market as they chased momentum lower.

Typically these bear market counter-trend rallies are short-lived and are followed by sell-offs to new bear market lows.

I was quite dismayed by all of the stock market bottom-callers who jumped out of hiding to announce that the stock market “water” was warm and that it’s safe to jump in.  Several of these mentally challenged mutual fund manager drones were on bubblevision Friday. These guys are either complete morons or ethically challenged.  If it’s the latter case, then they are breaching their fiduciary duty by encouraging the public to put more money in their funds.

An article in the Wall Street Journal featured a money manager who tried to make the case that the bottom is in.  Again, I hope that view comes from stupidity rather salesmanship.   And some guy named Rob Arnott who supposedly manages a zillion dollars was featured on a well-known podcast website encouraging listeners to put money in emerging markets. May as well take lighter fluid and a match to your money.  At least that would be worth the heat you create from the fire.

It simply blows my mind that, after 6+ year bull market in stocks that was entirely a product of money printing by Central Banks globally, a supposedly well-educated market “professional” can announce that the market has bottomed after a paltry 10% decline. The directional movement of the stock market is now solely derived from the actions and words coming from Central Banks.  The valuation levels in the stock market have never been more dislocated from underlying fundamentals than the present era and thus conveniently ignored.

But we can’t even begin to discuss a bottom until the entire investment universe is focused on real fundamentals.  This guy Rob Arnott tried to make the case that the emerging markets represent “deep” value.  That must be some kind of joke.  Many of the emerging market countries are the verge of financial, economic and political collapse.  If you put your money in Mr. Arnott’s fund you may never see it again.  But just like every other big money manager, he’s motivated by selfish interests.  If he were to preach the truth, his investor base would disappear and along with it the $10’s of millions in fees he’s making off of it.

I have a couple of friends who manage individual accounts. They both called me on Friday with the same story of taking multiple calls from clients asking  if the sell-off was over and if it was time to move more money into stocks.  That’s one of the surest signs that the move last week was nothing more than a bear market counter-trend rally.

Bear markets are designed by the laws of nature to inflict damage on as many people as possible.   Weeks like last week are designed to keep the middle class invested in stocks while the market goes lower.  The truth is that the entire global financial/economic system is collapsing.  The stock market and credit market action in January was nothing more than tremors ahead of a massive “earthquake” that will inflict unimaginable financial damage.

It’s part of the human condition to believe that really bad things can’t happen.  This is a big part of the reason it takes a long time for a bear market in stocks to unfold.  That plus blinding greed.  But the unfortunate truth is that more than likely the stock market in general will have to drop at least 50-70% before we can credibly discuss whether or not a bottom will occur.  I say 50-70% because most people would not believe me if I were to disclose where I really think the stock market is headed before this over.

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The weekly issue of the Short Seller’s Journal has been released this afternoon.  This is my best issue yet and includes an options trading resource (emailed separately).  I have identified a short-sell idea that takes advantage of a highly leveraged company exposed to a highly cyclical industry and has significant exposure to subprime counterparty risk.   I also have a leveraged energy sector “Quick Hit” play to take advantage of what appears to be yet another rumor-driven short-squeeze move in the price of oil last week.

Finally, I have some preliminary comments for subscribers on AMZN’s earnings report.   Every quarter I seem to discover more problematic aspects to AMZN’s business model.  By the way, as predicted, the growth in its cloud computing sales – the so-called AWS buiness – are starting to show signs of slowing down.

Click here or on the image above to subscribe:  SHORT SELLER’S JOURNAL

Thanks for putting together an informative report with actionable ideas. For years I have stared in stunned disbelief as the rigged up, QE inflated stock market kept defying gravity but it looks like the chickens are coming home to roost now. With the ideas you provide, I hope I can take advantage of the coming downturn with some profitable trades.